106928 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

1This preamble’s use of the DeFi term is not 

intended to create any inference as to whether or 

not this segment of the digital assets industry 

operates without any centralized participants. 

2Although https://www.regulations.gov indicated 

that over 125,000 comments were received, the 

Treasury and the IRS did not actually receive over 

125,000 comments. Instead, 125,000 reflects the 

number of ‘‘submissions’’ that each comment selfreported as being included in the comment, 

whether or not the comment actually included such 

separate submissions. 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10021] 

RIN 1545–BR39 

Gross Proceeds Reporting by Brokers 

That Regularly Provide Services 

Effectuating Digital Asset Sales 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations regarding information 

reporting by brokers that regularly 

provide services effectuating certain 

digital asset sales and exchanges. The 

final regulations require these brokers to 

file information returns and furnish 

payee statements reporting gross 

proceeds on dispositions of digital 

assets effected for customers in certain 

sale or exchange transactions. 

DATES: 

Effective date: These regulations are 

effective on February 28, 2025. 

Applicability dates: For dates of 

applicability, see § 1.6045–1(q). 

FOR FURTHER INFORMATION CONTACT: 

Roseann Cutrone or Jessica Chase of the 

Office of the Associate Chief Counsel 

(Procedure and Administration) at (202) 

317–5436 (not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains amendments 

to the Income Tax Regulations (26 CFR 

part 1) by adding final regulations under 

section 6045 of the Internal Revenue 

Code (Code) to require certain 

decentralized finance industry 

participants to file and furnish 

information returns as brokers. Section 

6045(a) provides an express delegation 

of authority to the Secretary of the 

Treasury or her delegate (Secretary) to 

require every person doing business as 

a broker to make returns, in accordance 

with such regulations as the Secretary 

may prescribe, showing the name and 

address of each customer, with such 

details regarding gross proceeds and 

such other information as the Secretary 

may by forms or regulations require. 

Section 80603 of the Infrastructure 

Investment and Jobs Act, Public Law 

117–58, 135 Stat. 429, 1339 (2021) 

(Infrastructure Act) amended section 

6045 clarify the definition of broker as 

it relates to persons responsible for 

regularly providing services effectuating 

transfers of digital assets, to expand the 

categories of assets for which basis 

reporting is required to include all 

digital assets, and to provide a 

definition for the term digital assets. 

Finally, the Infrastructure Act provided 

that these amendments apply to returns 

required to be filed, and statements 

required to be furnished, after December 

31, 2023, and provided a rule of 

construction stating that these statutory 

amendments shall not be construed to 

create any inference for any period prior 

to the effective date of the amendments 

with respect to whether any person is a 

broker under section 6045(c)(1) or 

whether any digital asset is property 

which is a specified security under 

section 6045(g)(3)(B). 

The final regulations are also issued 

under the express delegation of 

authority under section 7805(a) of the 

Code. Section 7805(a) authorizes the 

Secretary to ‘‘prescribe all needful rules 

and regulations for the enforcement of 

[the Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ The 

Infrastructure Act amended section 

6045, and the Secretary has determined 

that these final regulations are needful 

for the enforcement of the Code because 

tax compliance would be increased if 

brokers were required to file 

information returns, and furnish payee 

statements, under section 6045. See 

Proposed Rules, Gross Proceeds and 

Basis Reporting by Brokers and 

Determination of Amount Realized and 

Basis for Digital Asset Transactions, 88 

FR 59576 (August 29, 2023) (describing 

need for regulation and its anticipated 

impact on tax administration). 

Background 

On August 29, 2023, the Treasury 

Department and the IRS published in 

the Federal Register (88 FR 59576) 

proposed regulations (REG–122793–19) 

(proposed regulations) relating to 

information reporting under section 

6045 by brokers. These proposed 

regulations included rules that would 

apply to brokers that generally act as 

agents and dealers in transactions with 

their customers involving digital assets, 

which are defined generally as any 

digital representation of value that is not 

cash and is recorded on a 

cryptographically secured distributed 

ledger (that is, a database that records 

transactions across multiple computers) 

or any similar technology. The proposed 

regulations also included rules that 

would apply to brokers that act as 

digital asset middlemen, a new category 

of broker proposed to address the use of 

digital assets to make certain payments 

and to reflect the clarified definition of 

broker under the Infrastructure Act. 

This proposed new category of broker 

would include certain participants that 

operate within the segment of the digital 

assets industry that is commonly 

referred to as decentralized finance 

(DeFi).1 The DeFi industry offers 

services that allow for transactions that 

use automatically executing software 

commonly referred to as smart contracts 

based on distributed ledger technology 

without any participant in the DeFi 

industry (DeFi participant) taking 

custody of the private keys used for 

accessing the digital asset customer’s 

digital assets on a distributed ledger. 

Additionally, the proposed regulations 

included specific rules under section 

1001 of the Code for determining the 

amount realized in a sale, exchange, or 

other disposition of digital assets and 

under section 1012 of the Code for 

calculating the basis of digital assets. 

The proposed regulations stated that 

written or electronic comments 

provided in response to the proposed 

regulations must be received by October 

30, 2023. The due date for comments 

was extended until November 13, 2023. 

In response to the proposed regulations, 

the Treasury Department and the IRS 

received over 44,000 written 

comments.2 All posted comments were 

considered and are available at https:// 

www.regulations.gov or upon request. A 

public hearing was held on November 

13, 2023. In addition, the Treasury 

Department and the IRS continued to 

accept late comments through noon 

eastern time on April 5, 2024. 

On July 9, 2024, the Treasury 

Department and the IRS published in 

the Federal Register (89 FR 56480) final 

regulations (REG–122793–19) (TD 

10000) regarding information reporting 

by certain brokers and the 

determination of amount realized and 

basis for certain digital asset sales and 

exchanges. TD 10000 generally applies 

to digital asset brokers that act as agents 

for a party in the transaction, such as 

operators of custodial digital asset 

trading platforms, certain digital asset 

hosted wallet providers, and certain 

processors of digital asset payments 

(PDAPs), as well as persons that interact 

with their customers as counterparties 

to transactions, such as owners of digital 

asset kiosks, brokers who accept digital 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106929 

3See DTCC, Accelerating the U.S. Securities 

Cycle to T+1, Figure 2: Illustrative T+1 settlement 

trade flow, at page 8 (December 1, 2021), available 

at https://www.dtcc.com/-/media/Files/PDFs/T2/ 

Accelerating-the-US-Securities-Settlement-Cycle-toT1-December-1-2021.pdf; Financial Industry 

Regulatory Authority (FINRA), The LifeCycle of a 

Trade (November 21, 2017), available at https://

www.finra.org/investors/insights/online-tradelifecycle (describing the steps as the placement of 

an order by a customer and the receipt of the order 

by the broker, the sending of the order by a broker 

to an exchange or other trading center and the 

execution of the order on that exchange or other 

trading center, and the clearing and settling of the 

trade); Securities & Exchange Commission, Trade 

Execution: What Every Investor Should Know 

(January 15, 2013), available at https://www.sec.gov/ 

about/reports-publications/investorpubstradexec. 

4See FINRA, Where Do Stocks Trade? (September 

28, 2023), available at https://www.finra.org/ 

investors/insights/where-do-stocks-trade. 

assets as payment for commissions and 

certain other property, brokers that 

transact as dealers in digital assets, and 

certain issuers of digital assets who 

regularly offer to redeem those digital 

assets. Additionally, TD 10000 finalized 

specific rules under section 1001 for 

determining the amount realized in a 

sale, exchange, or other disposition of 

digital assets and under section 1012 for 

calculating the basis of digital assets. 

TD 10000 did not finalize the 

definition of digital asset middleman 

from the proposed regulations as 

applied to DeFi participants (referred to 

in the preamble to TD 10000 as noncustodial industry participants) because 

the Treasury Department and the IRS 

determined that additional 

consideration of the issues and 

comments received with respect to these 

participants was warranted. Instead, TD 

10000 reserved on the proposed 

definition of digital asset middleman 

that would have treated these 

participants as brokers. The preamble to 

TD 10000 also indicated that the 

Treasury Department and the IRS intend 

to expeditiously issue separate final 

regulations with respect to these 

participants. 

The Summary of Comments and 

Explanation of Revisions of these final 

regulations summarizes the digital asset 

middleman provisions in the proposed 

regulations that were reserved in TD 

10000, which provisions are explained 

in greater detail in the preamble to the 

proposed regulations. After considering 

the comments to these provisions, the 

reserved portion of the proposed 

regulations relating to the definition of 

a digital asset middleman is adopted as 

amended by this Treasury decision in 

response to such comments as described 

in the Summary of Comments and 

Explanation of Revisions. 

These final regulations concern 

Federal tax laws under the Internal 

Revenue Code only. No inference is 

intended with respect to any other legal 

regime, including the Federal securities 

laws and the Commodity Exchange Act, 

or the Bank Secrecy Act and its 

implementing regulations, which are 

outside the scope of these regulations. 

Summary of Comments and 

Explanation of Revisions 

I. Comparison of the Decentralized 

Digital Asset Ecosystem With the 

Securities Industry 

A few comments received in response 

to the proposed regulations asserted that 

the definition of broker in the final 

regulations should not extend beyond 

the scope of the definition of broker in 

the regulations that apply to securities 

industry participants in carrying out 

securities transactions. The Treasury 

Department and the IRS disagree with 

these comments and address them in 

Part II of this Summary of Comments 

and Explanation of Revisions. Before 

turning to that discussion, however, the 

Treasury Department and the IRS 

believe that a comparison of the 

functions carried out by brokers and 

other participants in the securities 

industry with the functions carried out 

by DeFi participants is useful in 

analyzing how the broker definition 

should apply to DeFi participants. 

A. The Securities Industry 

In the securities industry, the sale of 

a security typically involves three 

fundamental functions, each of which is 

necessary for the trade to take place. 

First, a customer will give a trade order 

to sell its securities to a securities 

broker, specifying the details of the 

order, such as the quantity and identity 

of the securities to be sold. Second, the 

securities broker will route the order 

details to a trading center, such as a 

national securities exchange or an 

alternative trading center, for example 

in the case of U.S. equities the New 

York Stock Exchange (NYSE) or the 

Nasdaq Stock Market, to execute the 

order. Third, once the exchange or other 

trading center finds a counterparty to 

the customer’s order, the matched trade 

will be sent to a clearing organization 

that will record and settle the 

transaction by moving the traded 

securities and funds between the 

accounts of the two brokers representing 

the matched customers. While other 

financial institutions may be involved 

in the sale transaction, and the 

functions involved may involve 

additional steps, these three functions 

are core functions.3

The securities broker that receives the 

customer’s order may offer additional 

services. For example, while retail 

customers many years ago held physical 

stock and bond certificates themselves 

or with third-party custodians, today a 

securities broker or affiliate of that 

broker typically will hold a retail 

customer’s securities as a custodian, 

although there are still limited 

circumstances under which an 

individual may hold physical securities 

certificates. For institutional customers, 

it is common for a financial institution 

other than the securities broker that 

receives the customer’s trade order to 

hold the customer’s securities. In some 

cases, for example in the case of an 

insurance company or pension plan, the 

customer’s securities may be held by a 

bank that offers specialized custodial 

services. In other cases, for example in 

the case of a hedge fund, the customer’s 

securities may be held by its primary 

securities broker, referred to as a prime 

broker, but the customer may give the 

order to a different broker, referred to as 

an executing broker, that offers lower 

fees or other terms preferred by the 

customer. If the securities broker taking 

the customer’s order does not hold the 

customer’s securities, the executing 

broker and the financial institution 

holding the customer’s securities will 

communicate with each other to ensure 

that the trade is executed smoothly by 

the exchange or other trading center. 

The market that executes the 

transaction may be a national securities 

exchange, as described above. 

Alternatively, the trade may be executed 

on an alternative trading center or by a 

single-dealer platform or wholesale 

broker. The function of all these trading 

centers is to match a sale order with a 

buy order.4 Another possibility is that 

the securities broker may not go to an 

external trading center to execute the 

trade. Instead, if the securities broker is 

also a dealer in those securities, it may 

fill the order by acting as the 

counterparty to the customer’s trade. 

Alternatively, the securities broker may 

match the sell order with a buy order 

from another customer. 

The last step in the transaction is for 

the sale to be cleared and settled. 

Clearing and settlement of a sale of 

securities involves verifying that the 

terms of the buy and sell orders match 

and carrying out the movement of 

securities from the account of the 

seller’s securities broker to the account 

of the buyer’s securities broker (which 

credits those securities to the buyer) and 

the movement of cash in the reverse 

direction. This function is carried out by 

a specialized financial institution that 

may be referred to as a clearing 

organization. 


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106930 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

5 In the context of the DeFi ecosystem, these final 

regulations use the term execute to refer to the 

activation of the automatically executing contracts 

of DeFi applications and not to the simultaneous 

activities of validators that initiate this activation. 

6See e.g., R. Auer, B. Haslhofer, S. Kitzler, P. 

Saggese, and F. Victor, The Technology of 

Decentralized Finance (DeFi), Bank for 

International Settlements (January 2023) (BIS 

Paper), at 3, available at: https://www.bis.org/publ/ 

work1066.htm, and F. Scha ̈r, Decentralized 

Finance: On Blockchain—and Smart ContractBased Financial Markets, Federal Reserve Bank of 

St. Louis Review, at 153, 156 (2d Qtr. 2021) (FRB 

Review), available at: https://research.

stlouisfed.org/publications/review/2021/02/05/ 

decentralized-finance-on-blockchain-and-smartcontract-based-financial-markets. 

7References in this preamble to an owner holding 

digital assets generally or holding digital assets in 

a wallet are meant to refer to holding or controlling 

the keys to the digital assets and, thus, the ability 

to transfer those digital assets. See § 1.6045– 

1(a)(25)(iv). 

Historically, communications 

between securities brokers and their 

customers took place in person or by 

telephone. Customers now may 

communicate a trade order to a 

securities broker through a mobile 

device application (mobile device app) 

or a website accessible via a computer 

or mobile device. The mobile device 

app or website provides a user interface 

with visual elements that enable 

customers to see the services offered 

and buttons and fill-in screens to enable 

customers to communicate trading 

instructions to the broker through the 

mobile device app or website. For 

example, a customer may access a 

mobile device app or website offered by 

a securities broker to select among a 

number of possible transactions, make 

its selection via buttons and fill-in 

screens, and authorize the purchase or 

sale of securities by clicking a button. 

Doing so generates a trade order in the 

form of software code which is 

transmitted to the broker’s systems and 

used to initiate the remaining steps in 

the transaction. Similarly, each of the 

other steps in the sale of a security 

typically now take place electronically, 

through specialized software. 

B. The Decentralized Digital Asset 

Ecosystem 

DeFi service providers use distributed 

ledger technologies to offer investment 

and other financial services, similar to 

those provided in the securities industry 

by securities brokers and exchanges, 

that enable customers to carry out trades 

of digital assets using applications,5

sometimes referred to as DeFi 

applications or dApps, without relying 

on a traditional centralized financial 

intermediary. The services provided 

generally involve multiple DeFi 

participants performing various 

functions throughout the process in 

order to complete a customer’s 

transaction, including: the intake of a 

customer’s trade order details and 

communication of that order to the 

validation network for execution of the 

trade using the automatically executing 

contracts of the DeFi protocol and for 

recordation and settlement of the trade 

via a consensus mechanism. Because 

these steps do not require the 

involvement of a centralized financial 

intermediary (although some 

participants may in fact be structured as 

such), they rely on software programs. 

Additional services and/or service 

providers may also be involved in the 

transaction. For example, another type 

of DeFi application, commonly referred 

to as a DeFi aggregator, may 

communicate the customer’s trade to the 

DeFi protocol with the most favorable 

trade execution terms. 

Several comments received in 

response to the proposed regulations 

referenced or described a model, 

referred to by some in the DeFi industry 

as the DeFi technology stack model or 

the DeFi stack reference model, which 

describes the components and functions 

involved in the communication, 

execution, and settlement of a typical 

DeFi transaction. This DeFi technology 

stack model is also described in several 

scholarly papers.6 The DeFi technology 

stack model classifies the technologies 

involved in the communication, 

execution, and settlement of a typical 

DeFi transaction into different 

technology layers, with each layer 

representing the performance of a 

different function in carrying out the 

overall transaction. In its simplest form, 

the DeFi technology stack model 

describes three primary technology 

layers—the interface layer, the 

application layer, and the settlement 

layer—even though these layers can be 

further subdivided into sub-layers. See 

BIS Paper at 4 (describing the 

application layer as having three 

sublayers). Other scholars describe the 

DeFi technology stack model as having 

more than three primary technology 

layers without subdivision within each 

layer. See e.g., FRB Review at 155 

(describing five primary layers). 

Regardless of the number of layers 

described by any given model, the 

functionality provided by each layer is 

generally needed to complete the 

communication, execution, and 

settlement of a digital asset transaction 

involving DeFi participants. See BIS 

Paper at 4. For simplicity’s sake, this 

preamble describes the DeFi technology 

stack model with three primary layers 

because that model is sufficient for the 

purpose of analyzing the issues raised 

by the comments received in response 

to the proposed regulations. 

In general terms, the three-layer DeFi 

technology stack model places the 

interface layer at the top of the DeFi 

technology stack model because this is 

the layer with which most users of 

digital assets interact. The interface 

layer is the layer that enables digital 

asset users to communicate with DeFi 

participants operating on the other 

layers for ultimate execution and 

settlement of the transaction. The 

interface layer does so by providing 

software (sometimes referred to as frontend services) that provides the digital 

asset user with tools—including 

screens, buttons, forms, and other visual 

elements incorporated in websites, 

mobile device apps, and browser 

extensions—that users can use to trade 

digital assets in their unhosted wallets 7

using DeFi protocols or DeFi aggregators 

operating on the application layer. The 

application layer is the layer that 

executes the user’s trade order as part of 

the validation process. It is comprised of 

DeFi protocols that consist of 

automatically executing software 

programs or smart contracts that, when 

called upon, perform a predetermined 

series of actions, for example 

exchanging digital asset A for digital 

asset B, when certain conditions are 

met. Finally, the settlement layer is 

generally responsible for recording 

financial transactions on the distributed 

ledger, including transactions 

conducted by users that trade digital 

assets using DeFi protocols. Each of 

these layers are described in more detail 

in Parts I.B.1., 2., and 3. of this 

Summary of Comments and 

Explanation of Revisions. 

While not included in the three-layer 

model described in the BIS Paper, an 

important component of a DeFi 

transaction is the use of an unhosted 

wallet by digital asset users. A wallet is 

a means of storing, electronically or 

otherwise, a user’s private keys to 

digital assets (more technically, the 

private keys to distributed ledger digital 

asset addresses as defined in § 1.6045– 

1(a)(20)) held by or for the user. Private 

keys are required to conduct 

transactions with the digital assets 

associated with those keys and are 

sometimes analogized to a password to 

a bank or investment account. In 

contrast to a hosted wallet, in which a 

custodial service electronically stores 

the private keys to digital assets held on 

behalf of digital asset users, an unhosted 

wallet is a non-custodial means of 

storing a user’s private keys to digital 

assets held by or for the user. See 

§ 1.6045–1(a)(25)(i) and (iii). A broadly 


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analogous fact pattern (disregarding the 

technological differences) in the 

securities industry would be the use of 

a home safe by an investor to store the 

investor’s securities certificates, so that 

only the investor controls what happens 

with those certificates. Unhosted wallets 

also typically include software that 

enables digital asset users to use their 

private keys, generally by signing or 

authorizing a transaction. Unhosted 

wallets may also provide wallet users 

with other services, such as tools that 

enable users to interact with the DeFi 

marketplace. 

1. The Interface Layer 

While DeFi protocols execute 

exchanges of digital assets, interacting 

directly with a DeFi protocol requires 

the ability to write software code that 

will communicate with other 

participants in the DeFi ecosystem. 

Although some digital asset users 

possess these technical skills, most 

retail digital asset users do not. Instead, 

most retail digital asset users use the 

services provided by other participants 

in the DeFi ecosystem that offer a more 

user-friendly way to specify the details 

of the transaction they wish to carry out 

and to communicate that order so that 

it can be carried out. These services are 

generally referred to as front-end 

services because they are provided at 

the front end of a transaction and are 

classified as the interface layer because 

they are the services that most users 

face. 

Providers of front-end services 

typically offer a suite of services that 

enable their customers to view the 

market conditions relating to a 

customer’s proposed trade, to input 

their proposed trade, and then to initiate 

the additional steps necessary to trade 

their digital assets (trading front-end 

services). Providers of these trading 

front-end services are referred to here as 

trading front-end service providers. This 

suite of services may be offered as part 

of the enhanced services offered by an 

unhosted wallet or alternatively by a 

website or mobile app to which 

customers connect their unhosted 

wallets. In either case, this service is 

provided through software that assists 

customers in initiating digital asset 

transactions, such as an exchange of 

digital asset A for digital asset B using 

a DeFi protocol. For example, when 

digital asset user C seeks to trade digital 

assets in C’s unhosted wallet using a 

DeFi protocol, C may use a mobile 

device app or a website accessible via 

computer or mobile device that is 

designed for that purpose. Embedded in 

that mobile device app or website is 

software that provides C with visual 

elements that enable C to see the 

services offered, such as screens to view 

the distributed ledger market and 

potential trade transactions and buttons 

for C to press to communicate C’s 

desired transaction order. 

When customers use trading front-end 

services, they will typically be provided 

with an array of available digital asset 

trading pairs applicable to the digital 

assets they hold in their unhosted 

wallets. For example, a customer that 

wishes to exchange a digital asset will 

be shown a menu of the trading pairs 

available for exchange of the customer’s 

digital asset for different digital assets as 

well as the current exchange rate for 

each potential trade. Some trading frontend services also offer customers the 

ability to choose the DeFi trading 

application that will execute their 

transaction. After a customer reviews 

the available trading pairs and decides 

on a potential transaction, the customer 

will input the necessary trade order 

information. Thereafter, the trading 

front-end service will typically ask the 

customer to confirm the specific trade 

order details. If the trade order details 

are confirmed by the customer, the 

trading front-end service will convert 

that trade order information into 

software code in the form of a data 

object, referred to here as coded trade 

order instructions. The coded trade 

order instructions include all of the 

details of the transaction, including how 

many digital assets to remove from the 

customer’s unhosted wallet, the fees (if 

any) payable to the trading front-end 

service provider, and whether these fees 

will be withheld from the amount of 

digital assets disposed or the digital 

assets received in the trade. The coded 

trade order instructions must specify the 

particular DeFi trading protocol that 

will execute the customer’s trade. The 

coded trade order instructions also 

specify the type of digital assets the 

customer will receive at the completion 

of the transaction and may specify the 

digital asset address into which the 

received digital assets should be 

transferred. In advance of certain 

transactions requested by the customer, 

the provider of trading front-end 

services will also obtain the customer’s 

permission for the particular DeFi 

protocol to move digital assets out of the 

customer’s wallet in one or more 

transactions. Without this service, many 

customers’ trades cannot be executed. 

After the coded trade order 

instructions are complete, the next step 

is for the customer to authorize or sign 

the transaction, for example by clicking 

a button in the customer’s wallet. Once 

the customer authorizes the transaction 

in their wallet, the unhosted wallet then 

forwards the signed transaction to a 

communication node for broadcast to 

the distributed ledger network, where it 

will stay as a pending transaction until 

a validator chooses to include it in a 

block, and the block is added to the 

distributed ledger. As part of the 

validator’s processing of a DeFi protocol 

transaction, the coded trade order 

instructions provided through the 

trading front-end services call the 

applicable DeFi protocol’s automatically 

executing smart contracts, which 

execute the transaction by performing 

the operations it was coded to perform 

without human intervention. In less 

technical terms, once the customer 

authorizes the transaction, the coded 

trade order instructions determine the 

subsequent steps in the transaction as it 

is processed. In short, trading front-end 

services permit a customer to select, 

confirm, and communicate the details of 

a trade transaction that it wishes to 

carry out using a DeFi protocol so that 

the transaction can be executed and 

settled by other DeFi participants. 

Notwithstanding differences in the 

technology used and the details of the 

mechanisms by which a customer’s 

order is carried out, these services are 

similar to those provided to a customer 

by a traditional securities broker that 

does not hold or custody a customer’s 

assets. 

In some cases, a trading front-end 

service provider might take control of 

the customer’s digital assets by routing 

the customer’s digital assets to an 

address controlled by the trading frontend service provider, for example, 

where the trading front-end services 

include DeFi aggregator services. 

Unhosted wallet providers do not 

necessarily offer the trading front-end 

services described in the previous 

paragraphs. Unhosted wallet providers 

may offer only more limited, basic 

wallet services or they may offer both 

basic wallet services and trading frontend services. As discussed in Part 

III.A.2. of this Summary of Comments 

and Explanation of Revisions, a core 

function of an unhosted wallet is to 

store private keys to distributed ledger 

digital asset addresses, so that wallet 

users can securely hold their digital 

assets at those addresses. In addition, as 

part of the basic wallet services, 

unhosted wallet providers typically 

include software that enables their 

customers to use those private keys to 

sign or authorize a transaction, similar 

to inputting a password or passcode to 

authorize other types of online 

transactions. Many providers of 

unhosted wallets also provide basic 

wallet services that enable their 

customers to transfer digital assets from 


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106932 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

8Unless otherwise qualified, regulation section 

references refer to the final regulations in effect 

before the effective date of these final regulations. 

The final regulations in effect before the effective 

date of TD 10000 will collectively be referred to as 

the pre-TD 10000 regulations. 

one wallet to another wallet. A customer 

that wishes to use trading front-end 

services but whose unhosted wallet 

provider does not offer the desired 

services or does not offer them at a 

competitive price, can use the trading 

front-end services provided by a thirdparty website or a mobile device app by 

connecting their unhosted wallet to that 

third-party website. To carry out any 

transaction that will be recorded on the 

distributed ledger, the unhosted wallet 

will broadcast the signed transaction to 

the distributed ledger network, often 

through the use of specialized 

communication nodes. The basic wallet 

services described in this paragraph can 

be distinguished from the enhanced 

wallet services in which the trading 

front-end services used to interact with 

a DeFi protocol (described in the 

previous paragraphs in this part) or a 

DeFi aggregator that communicates the 

customer’s trade to the DeFi protocol 

with the most favorable trade execution 

terms are provided by the unhosted 

wallet. 

2. The Application Layer 

The application layer is in the middle 

of the three-layer DeFi technology stack 

model. One of the core functions of the 

application layer is to provide DeFi 

protocols that users can interact with to 

trade digital assets. DeFi protocols 

provide a function that is analogous to 

the function provided by a stock 

exchange or other trading center for 

matching buy and sell orders in the 

securities industry, although there are 

technological differences as to how that 

function is carried out. 

A DeFi protocol is comprised of 

computer software that utilizes 

distributed ledger technology to provide 

digital asset exchange services through 

automatically executing software that 

performs a predetermined series of 

actions when certain conditions are met. 

BIS Paper at 2. One type of DeFi 

protocol is an automated market maker. 

BIS Paper at 4. Some DeFi protocols 

create an exchange marketplace by 

pooling digital assets provided by 

multiple digital asset users to create 

market liquidity. Id. 

As discussed in I.B. of this Summary 

of Comments and Explanation of 

Revisions, another type of DeFi 

application relevant to the purchase and 

sale of digital assets is a DeFi aggregator. 

DeFi aggregators interact with, and use 

the services of, other DeFi protocols. BIS 

Paper at 4. A DeFi aggregator 

communicates a user’s trade order to a 

DeFi protocol that may offer the most 

favorable trade execution terms. 

Although DeFi applications can 

facilitate many types of activities, such 

as non-custodial staking and re-staking, 

this preamble focuses only on DeFi 

protocols and DeFi aggregators that 

enable digital asset users to exchange 

digital assets for different digital assets, 

referred to respectively as DeFi trading 

protocols and DeFi trading aggregators 

and collectively as DeFi trading 

applications. 

Many of the comments describe DeFi 

trading applications as having 

immutable software that cannot be 

changed. However, many of these DeFi 

trading applications can simply be 

replaced by other applications that have 

new or different features, thus allowing 

for software upgrades in practice. In 

other cases, a DeFi trading application 

may have an ‘‘administration key’’ or 

similar tool that allows developers, 

founders, or other persons to modify the 

software, such as by changing or 

updating certain variables within the 

software. The details of the changes that 

can be made to the software, and who 

can make them, however, are different 

with each DeFi trading application. 

3. The Settlement Layer 

The settlement layer is at the bottom 

of the three-layer DeFi technology stack 

model. The settlement layer is generally 

responsible for completing financial 

transactions and discharging the 

obligations of all involved parties. BIS 

Paper at 4. Settlement involves 

recording financial transactions on the 

distributed ledger. This function is 

comparable to the clearing and settling 

of securities transactions, some of which 

are now being settled through 

distributed ledger technology. 

Settlement of a digital asset transaction 

is achieved by validators including the 

transaction in a block and adding that 

block to the blockchain through a 

consensus mechanism that resolves 

potential conflicts using consensus 

standards developed by the distributed 

ledger network. Id. In addition to 

validators, there are other DeFi 

participants, such as block builders, that 

may participate in this process. Once 

recorded, transactions are generally 

immutable, meaning they cannot be 

reversed. The recording of a transaction 

on the settlement layer generally effects 

a ‘‘state change’’ in a distributed ledger. 

II. Statutory Authority To Treat DeFi 

Participants as Brokers 

A. Background 

Before the amendments made to the 

Infrastructure Act, the definition of 

broker in section 6045(c)(1) included a 

dealer, a barter exchange, and a person 

who (for consideration) regularly acts as 

a middleman with respect to property or 

services. See section 6045(c)(1)(A), (B), 

and (C). The Infrastructure Act, in 

section 6045(c)(1)(D), added a new 

clause to the definition of broker: any 

person who (for consideration) is 

responsible for regularly providing any 

service effectuating transfers of digital 

assets on behalf of another person. 

Section 1.6045–1(a)(1) 8 defines 

brokers that are required to report under 

section 6045. Under this section, ‘‘any 

person . . . that, in the ordinary course 

of a trade or business during the 

calendar year, stands ready to effect 

sales to be made by others’’ is a broker 

obligated to file information returns 

under section 6045. Section 1.6045– 

1(a)(10) of the pre-TD 10000 regulations 

defined effect for this purpose to mean 

either to act as a principal with respect 

to a sale (for example, a dealer in 

securities who buys a security from one 

customer and then sells that security to 

another customer) or to act as an agent 

with respect to a sale if the nature of the 

agency is such that the agent ordinarily 

would know the gross proceeds of the 

sale. Because the regulatory definition 

of the term broker includes a reference 

to effecting sales, the definition of the 

term effect affects the types of persons 

who are treated as brokers. In addition, 

§ 1.6045–1(a)(4) further defines a barter 

exchange that is a broker under section 

6045(c)(1)(B) as any person with 

members or clients that contract either 

with each other or with such person to 

trade or barter property or services 

either directly or through such person. 

In § 1.6045–1(a)(10)(i)(D), TD 10000 

added to the definition of effect: to act 

as a digital asset middleman for a party 

in a sale of digital assets. Section 

1.6045–1(a)(21)(i) defined a digital asset 

middleman for this purpose as any 

person who, with respect to a sale of 

digital assets, provides a facilitative 

service. Section 1.6045– 

1(a)(21)(iii)(B)(1) through (4) defined a 

facilitative service by referencing five 

specific services in which the broker 

acts either as an agent or a counterparty 

in a digital asset sale. 

Proposed § 1.6045–1(a)(21)(iii)(A) 

would have also included in the 

facilitative services definition any 

service that directly or indirectly 

effectuates a sale of digital assets, such 

as providing a party in the sale with 

access to an automatically executing 

contract or protocol, providing access to 

digital asset trading platforms, 

providing an automated market maker 


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9Merriam-Webster Dictionary, ‘‘broker,’’ accessed 

October 25, 2023, https://www.merriamwebster.com/dictionary/broker. 

system, providing order matching 

services, providing market making 

functions, providing services to discover 

the most competitive buy and sell 

prices, or providing escrow or escrowlike services to ensure both parties to an 

exchange act in accordance with their 

obligations. To be covered by this 

proposed rule, under proposed 

§ 1.6045–1(a)(21)(i), the person 

providing facilitative services would 

have to ordinarily know or be in a 

position to know the identity of the 

party making the sale and the nature of 

the transaction. Proposed § 1.6045– 

1(a)(21)(iii)(A) would have excepted 

from the definition of facilitative 

services certain validation services if 

conducted by a person engaged in the 

business of providing distributed ledger 

validation services and certain sales of 

hardware or licenses of software by 

persons engaged in the business of 

selling hardware or licensing software, 

for which the sole function is to permit 

persons to control private keys which 

are used for accessing digital assets on 

a distributed ledger. TD 10000 reserved 

on both the facilitative service 

definition under proposed § 1.6045– 

1(a)(21)(iii)(A) and the definition of the 

ordinarily would know or position to 

know standard (together referred to 

herein as the position to know standard) 

under proposed § 1.6045–1(a)(21)(ii). 

The proposed text for these provisions 

is discussed more fully in Parts III.A.2., 

III.A.3., and III.A.4. of this Summary of 

Comments and Explanation of 

Revisions. 

B. Comments Received 

1. The Statutory Language 

The Treasury Department and the IRS 

received numerous comments directed 

at the facilitative services definition 

under the proposed new digital asset 

middleman rules. As a threshold matter, 

several comments argued that this 

definition is inconsistent with the plain 

meaning of the broker definition under 

section 6045(c)(1)(D). Other comments 

asserted that the broker definition under 

section 6045(c)(1)(D) is limited to 

persons acting as agents in digital asset 

transactions. One comment cited 

Merriam-Webster Dictionary’s definition 

of broker, as ‘‘someone who acts as an 

intermediary: such as . . . an agent who 

negotiates contracts of purchase and 

sale . . . [or] an agent who arranges 

marriages,’’ 9 as support for this 

assertion. Other comments reasoned 

that the term effectuate was meant to be 

synonymous with the term ‘‘effect’’ in 

§ 1.6045–1(a)(10) of the pre-TD 10000 

regulations, which, the comment stated, 

for over 35 years has required the broker 

to act as an agent (or principal) in the 

transaction. See TD 7873, 48 FR 10302 

(March 11, 1983). Another comment 

also focused on the definition of 

‘‘customers’’ in the pre-TD 10000 

regulations to similarly argue that 

section 6045(c)(1)(D) should not expand 

the scope of the broker definition 

beyond persons acting as agents or 

principals in a transaction. Specifically, 

the term customer is defined in 

§ 1.6045–1(a)(2) to mean the person that 

makes the sale if the broker acts as an 

agent for such person in the sale, as a 

principal in the sale, or as a participant 

in the sale responsible for paying to 

such person or crediting to such 

person’s account the gross proceeds on 

the sale. Because the definition of 

customer under the pre-TD 10000 

regulations requires that the brokercustomer relationship be an agency, 

principal, or payor relationship, this 

comment argued that section 

6045(c)(1)(D) should similarly be 

limited to persons acting as agents or 

principals in the sale. 

As discussed in Parts II.B.1.a. and 

II.B.1.b. of this Summary of Comments 

and Explanation of Revisions, the 

Treasury Department and the IRS do not 

agree that the statutory language 

defining broker under section 

6045(c)(1)(D) is limited only to persons 

that act as the customer’s agent (or as a 

principal/dealer) in a digital asset 

transaction. 

a. The Definition of Broker Prior to the 

Infrastructure Act 

For over 35 years, the Code has set 

forth a broad definition of broker under 

section 6045(c)(1). Under this 

definition, the term broker is not limited 

to conventional securities brokers. 

Rather, the statutory language defines 

the term broker to include several other 

types of market participants. First, 

section 6045(c)(1)(A) treats a dealer as a 

broker. Dealers typically hold inventory 

and act as principals in sale 

transactions. George R. Kemon v. 

Commissioner, 16 T.C. 1026 (1951). 

Second, under section 6045(c)(1)(B), 

the term broker includes a barter 

exchange, which is defined in section 

6045(c)(3) to mean any organization of 

members providing property or services 

who jointly contract to trade or barter 

such property or services. Long-standing 

regulations define a barter exchange to 

mean any person with members or 

clients that contract either with each 

other or with such person to trade or 

barter property or services either 

directly or through such person. See 

§ 1.6045–1(a)(4). The regulations require 

these barter exchanges to report an 

exchange of property or services if the 

barter exchange arranges a direct 

exchange of property or services among 

its members or clients. See § 1.6045– 

1(e)(2). That is, a barter exchange is 

treated as a broker if it merely provides 

the service of bringing together the 

parties to the exchange, without acting 

as either an agent or a principal to the 

exchange. 

Third, under section 6045(c)(1)(C), the 

statutory broker definition includes 

certain middlemen with respect to 

property or services. Because the 

statutory language must be given 

meaning, the term middleman must 

include persons who would not 

otherwise be considered brokers under 

the definition without section 

6045(c)(1)(C). Pursuant to this authority, 

the section 6045 regulations treat certain 

payors and agents as brokers, including 

professional custodians as well as 

dividend reinvestment agents that do 

not take custody of customer securities. 

See § 1.6045–1(b)(1)(ii) and (v) 

(Example 1). Additionally, the flush 

language in section 6045(c) expressly 

exempts a person that manages a farm 

on behalf of another person from the 

definition of broker with respect to their 

farm management activities. See H.R. 

Rep. No. 100–795, at 360 (1988) (the bill 

exempts farm managers from the 

requirement of filing a Form 1099–B 

with respect to their farm management 

activities because this information must 

already be filed, in a more useful format, 

by these farm managers on a Schedule 

F, thus, making the Form 1099–B 

duplicative). This farm-manager 

exemption shows that Congress broadly 

construed the term middleman beyond 

conventional securities brokers. In 

addition, § 1.6045–1(b)(2)(ii) and (vii) 

(Example 2) provide specific exclusions 

for stock exchanges and clearing 

organizations, which, absent those 

exclusions, would be middlemen 

treated as brokers. Indeed, virtually all 

other persons that § 1.6045–1(b)(2) 

(Example 2) illustrates as non-brokers, 

including certain stock transfer agents 

for a corporation, certain escrow agents 

or nominees, and certain floor brokers 

on a commodities exchange, are 

examples of persons that could be 

considered middlemen. 

Thus, prior to the Infrastructure Act, 

the term broker under section 6045(c)(1) 

included specified types of principals, 

custodial agents, non-custodial agents, 

payors, and service providers, pursuant 

to the statute and long-standing 

implementing regulations. See e.g., 

§ 1.6045–1(c)(3)(iv) and (c)(4)(iii), (iv), 

and (v) (Examples 3, 4, and 5) (multiple 


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broker examples involving one broker 

that holds the customer’s assets and 

another broker that does not hold the 

customer’s assets). The term broker was 

not defined by reference to any 

particular type of property or services. 

Accordingly, statutory authority existed 

before the enactment of the 

Infrastructure Act to treat centralized 

digital asset exchanges that act as 

traditional brokers or dealers as brokers 

for purposes of section 6045(c)(1). 

In addition, section 6045(c)(1) also 

provided statutory authority to treat as 

a broker any other person that satisfied 

the definition of broker, dealer, or a 

middleman with respect to property or 

services if the middleman regularly 

acted as such for consideration. See Part 

II.B.2. of this Summary of Comments 

and Explanation of Revisions, for a 

discussion of the scope of this authority 

with respect to DeFi participants. 

b. The Definition of Broker Under 

Section 6045(c)(1)(D) as Enacted by the 

Infrastructure Act 

Section 6045(c)(1)(D) treats as a 

broker any person who (for 

consideration) is responsible for 

regularly providing any service 

effectuating transfers of digital assets on 

behalf of another person. This statutory 

language explicitly addresses certain 

types of activities not previously 

addressed expressly by section 

6045(c)(1) that are relevant to 

determining broker status. Section 

6045(c)(1)(D) refers to persons who 

provide specified types of digital asset 

services, when regularly provided for 

consideration on behalf of another 

person. The relevant services are those 

that effectuate transfers of digital assets. 

The statutory language treats the person 

providing those services as a broker. 

Statutory language must be construed 

to avoid rendering it as surplusage. See 

TRW, Inc. v. Andrews, 534 U.S. 19, 31 

(2001) (noting the ‘‘cardinal principle’’ 

of statutory interpretation requires that 

‘‘if it can be prevented, no clause, 

sentence, or word shall be superfluous, 

void, or insignificant.’’). Accordingly, 

the Treasury Department and the IRS 

understand the statutory language to 

define the term broker in a manner that 

does not merely restate what was the 

law prior to the Infrastructure Act. 

One comment asserted that the text in 

section 6045(c)(1)(D) merely expands 

the broker definition with respect to the 

new types of assets (digital assets) that 

must be reported and clarifies that the 

persons reporting these new types of 

digital asset transactions must be 

conducting otherwise similar activities 

to brokers included in the existing 

definition of broker. The Treasury 

Department and the IRS do not agree 

that section 6045(c)(1)(D) applies only 

to digital asset brokers that fall within 

the broker definition under section 

6045(c)(1) prior to the Infrastructure Act 

amendments. As described in Part 

II.B.1.a. of this Summary of Comments 

and Explanation of Revisions, section 

6045(c)(1) already provided authority to 

address at least some digital asset 

brokers prior to the Infrastructure Act 

amendments. Section 6045(c)(1)(D) was 

added to the Code because Congress 

recognized that, in certain respects, the 

digital asset industry works differently 

from the securities industry and that 

explicit statutory language providing 

that certain additional digital asset 

service providers should be treated as 

brokers was essential to providing 

clarity on how information reporting 

rules apply to transactions involving 

digital assets. Nothing in the text of 

section 6045(c)(1)(D) limits the scope of 

digital asset brokers to those that fall 

within the broker definition under 

section 6045(c)(1) prior to the 

Infrastructure Act. Additionally, section 

6045(c)(1)(D) does not limit the scope of 

digital asset brokers to persons who act 

as agents, because by its terms the 

statutory language refers to service 

providers. A person providing services 

to a customer may or may not be acting 

as an agent for the customer. Many 

service providers are not agents for their 

customers. Section 6045(c)(1)(D) refers 

to persons providing services and, 

therefore, is not limited to persons 

providing services only as agents. 

Moreover, because persons acting as 

agents are already included in the 

broker definition under section 

6045(c)(1)(C), limiting section 

6045(c)(1)(D) to persons providing 

services as agents for digital asset 

transactions would render its text 

entirely superfluous. 

Section 6045(c)(1)(D) also is not 

limited to persons who effectuate 

transfers of digital assets. Section 

6045(c)(1)(D) applies to any person who 

provides ‘‘any service effectuating 

transfers,’’ not ‘‘any person who 

effectuates transfers.’’ That is, the 

statutory language in section 

6045(c)(1)(D) applies to persons who 

provide services to others, which 

services effectuate digital asset transfers. 

Given this textual distinction, the 

Treasury Department and the IRS have 

determined that section 6045(c)(1)(D) 

properly applies to persons that supply 

customers with services that are used by 

those customers to carry out digital asset 

transactions. As described in Part I.B.1. 

of this Summary of Comments and 

Explanation of Revisions, that is exactly 

the function provided by trading frontend service providers. For the reasons 

described in that part, most digital asset 

users could not easily carry out a DeFi 

sale or exchange of digital assets 

without the services of a trading frontend service provider. Although trading 

front-end service providers may not act 

as agents for their customers in these 

transactions, the services provided by 

these trading front-end service providers 

with respect to digital assets enable 

their customers to trade their digital 

assets through other DeFi participants, 

just as the services provided by 

securities brokers enable their 

customers to trade their securities 

through other securities market 

participants. That is, both trading frontend service providers and securities 

brokers make it possible for a customer 

to review a range of options for possible 

transactions, to make a selection and 

confirm that selection, and to 

communicate the details of the 

transaction that the customer wishes to 

carry out so that the transaction can be 

executed and settled by other market 

participants. Similarly, in both cases, 

the means by which those services are 

provided may include a website or 

mobile device app that provides a series 

of visual elements, such as forms, 

buttons that initiate actions, and 

dynamic page updates, that enable 

customers to view the market conditions 

relating to their proposed trades and to 

interact with that market by inputting 

their trade orders. 

Several comments argued that merely 

providing customers with software that 

the customer can use to engage in digital 

asset transactions does not constitute a 

‘‘service effectuating transfers.’’ The 

Treasury Department and the IRS do not 

agree that the definition of broker 

should turn on the technological 

implementation of the services provided 

because the statute makes no reference 

to a particular form of technology. 

Instead, the definition should turn on 

what those services do. For example, the 

fact that, currently, a securities broker or 

dealer takes customer orders or routes 

these orders electronically does not 

change the nature of the services that 

the securities broker or dealer provides. 

The provision of a suite of software that 

enables a customer to interact with a 

distributed ledger network and 

effectuate transactions using DeFi 

trading applications is an example of 

providing a service that effectuates 

transfers. 

Numerous comments argued that the 

term effectuate in section 6045(c)(1)(D) 

prevents the application of the broker 

definition to DeFi participants because 

these participants do not control the 


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private keys to the customer’s digital 

assets being traded. As support for this 

argument, one comment cited a 

dictionary’s definition of effectuate as 

‘‘to cause or bring about (something)’’ 

and a Supreme Court interpretation of 

the meaning of ‘‘effect’’ as requiring a 

‘‘reasonably close causal relationship 

between a change in the physical 

environment and the effect.’’ See 

Effectuate, Merriam-Webster Online, 

https://www.merriam-webster.com/ 

dictionary/effectuate; Metro. Edison Co. 

v. People Against Nuclear Energy, 460 

U.S. 766, 774 (1984). This comment also 

compared transactions in which DeFi 

participants do not control the private 

keys to the customer’s digital assets 

with those carried out by traditional 

securities brokers in which the brokers 

hold custody of the customer’s 

securities and then asserted that the 

definition of effectuate cannot apply to 

the services provided by DeFi 

participants. Other comments argued 

that the word effectuate was meant to 

apply only to the one person who 

carries out the transaction. These 

comments concluded that expansion of 

the reporting regime under section 6045 

to persons that do not possess 

traditional characteristics of a broker in 

carrying out transactions exceeds the 

scope of the statute. 

The Treasury Department and the IRS 

do not agree that the actions of only one 

person, whether within the traditional 

securities industry or within the DeFi 

industry, causes a transaction to be 

carried out (or effectuated), which is 

why the pre-TD 10000 regulations 

contain a multiple broker rule. The 

Treasury Department and the IRS do 

agree, however, that a comparison of the 

persons involved in the steps necessary 

to carry out a securities transaction with 

the services involved in the steps 

necessary to carry out a DeFi transaction 

is helpful to understanding what it 

means to effect or effectuate a 

transaction. For purposes of this 

analysis as well as throughout these 

final regulations, the term person has 

the meaning provided by section 

7701(a)(1) of the Code, which provides 

that the term generally includes an 

individual, a legal entity, and an 

unincorporated group or organization 

through which any business, financial 

operation or venture is carried on, such 

as a partnership. The term person 

includes a business entity that is treated 

as an association or a partnership for 

Federal tax purposes under § 301.7701– 

3(b). Accordingly, a group of persons 

providing services that together carry 

out a customer’s digital asset transaction 

may be treated as a broker whether or 

not the group operates through a legal 

entity if the group is treated as a 

partnership or other person for U.S. 

Federal income tax purposes. 

As discussed in Part I.A. of this 

Summary of Comments and 

Explanation of Revisions, in the 

securities industry, the steps of a 

transaction typically begin when an 

investor communicates a trade order to 

a securities broker, who may or may not 

have custody of the investor’s securities, 

and authorizes the securities broker to 

carry out the trade. The securities broker 

generally will assess how to obtain the 

best execution for the customer. That 

assessment could lead the broker to fill 

the order from its own account or match 

the trade with an offsetting trade order 

from another customer. The broker 

could also decide to route the investor’s 

order to a trading center, such as a 

national securities exchange, an 

alternative trading system, or a dealer. 

The exchange or other trading center 

generally will attempt to find a 

counterparty to the investor’s order. If 

the order is executed, transaction 

information typically will be sent to a 

clearing organization that will move the 

funds and securities between the 

appropriate accounts at the clearing 

organization to settle the transaction. 

The regulations under section 6045 treat 

only one of these securities industry 

participants as the broker with reporting 

obligations. See § 1.6045–1(b)(2)(ii) and 

(vii) (Example 2) (not treating certain 

stock exchanges and clearing 

organization as brokers). 

Notwithstanding this rule, each of these 

participants technically meets the 

definition of a person who effects (or 

‘‘act[s] as . . . an agent for a party 

[albeit not the customer] in the sale’’ if 

it ordinarily would know from its 

services the gross proceeds from the 

sale). See § 1.6045–1(a)(10)(i)(A). 

Accordingly, it is the actions of all these 

securities industry participants—along 

with those of the customer—that 

collectively cause the transaction to be 

carried out. 

Similarly, as discussed in Parts I.B. 

and I.B.1. through I.B.3. of this 

Summary of Comments and 

Explanation of Revisions, the DeFi 

technology stack model shows that, in 

addition to the customer, there are 

multiple DeFi participants involved in 

causing a digital asset transaction to be 

carried out. In the DeFi industry, when 

a customer inputs a trade order on a 

mobile device app or a website 

accessible via computer or mobile 

device, a trading front-end service 

provider receives that trade order and 

has the customer confirm the trade 

order details. Once the trade order 

details are confirmed by the customer 

on the customer’s computer or mobile 

device, the trading front-end services 

translate those details into coded trade 

order instructions which are sent to the 

customer’s unhosted wallet to obtain the 

customer’s signature or authorization. 

Thereafter, the wallet transmits the 

coded trade order instructions to the 

distributed ledger network for the 

eventual interaction with the applicable 

DeFi trading application for matching 

and for settlement pursuant to the 

services of DeFi participants operating 

at the settlement layer. Importantly, like 

the traditional securities transaction, the 

actions of the customer and all these 

DeFi participants collectively cause the 

transaction to be carried out. 

Accordingly, like in the securities 

industry, in which the customer, the 

securities broker, the securities 

exchange, and the clearing organization 

are all typically needed to carry out a 

securities transaction, in a DeFi 

transaction, the customer, the trading 

front-end service provider, the DeFi 

application, and the validator are all 

typically needed to carry out the DeFi 

transaction. 

Regarding the comment that the 

definition of effectuate cannot apply to 

DeFi participants that do not control the 

private keys to the customer’s digital 

assets, as discussed in Part II.B.5. of this 

Summary of Comments and 

Explanation of Revisions, the Treasury 

Department and the IRS do not agree 

with this comment because the current 

broker rules as applied to the securities 

industry treat persons without custody 

of a customer’s assets as a broker under 

section 6045. See e.g., § 1.6045– 

1(c)(3)(iv) and (c)(4)(iii), (iv), and (v) 

(Examples 3, 4, and 5) (examples 

treating persons that do not hold the 

customer’s assets as brokers). 

2. Title of the Broker Definition in the 

Infrastructure Act 

Several comments argued that the 

existing scope of activities that give rise 

to treating a person as a broker should 

not be expanded to cover DeFi 

participants because section 80603(a) of 

the Infrastructure Act titled the new 

broker definition as a ‘‘clarification of 

[the] definition of broker.’’ One 

comment stated that the definition of 

broker under section 6045(c)(1)(D) is 

limited to agents and principals. 

Another comment stated that a broker 

under section 6045(c)(1)(D) must be a 

middleman. Another comment stated 

that a middleman under section 

6045(c)(1)(D) must be an intermediary. 

The Treasury Department and the IRS 

do not agree that limiting the meaning 

of section 6045(c)(1)(D) to persons 


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10See JCT, JCX–33–21, Estimated Revenue Effects 

of the Provisions in Division H of an Amendment 

in the Nature of a Substitute to H.R. 3684, Offered 

by Ms. Sinema, Mr. Portman, Mr. Manchin, Mr. 

Cassidy, Mrs. Shaheen, Ms. Collins, Mr. Tester, Ms. 

Murkowski, Mr. Warner and Mr. Romney, The 

‘‘Infrastructure Investment and Jobs Act’’ (August 2, 

2021). 

acting as the customer’s agent or a 

principal in the transaction is required 

by the definition of broker under section 

6045(c)(1)(A) through (C) because, 

except for section 6045(c)(1)(A), which 

is specifically limited to dealers, the 

definition of broker includes no such 

limitation. As discussed in Part II.B.1.a. 

of this Summary of Comments and 

Explanation of Revisions, under section 

6045(c)(1)(B) and the regulations 

thereunder, the term broker includes a 

barter exchange that is not acting as a 

customer’s agent or as a dealer or 

principal. Similarly, under section 

6045(c)(1)(C), the term broker includes 

any other person who (for a 

consideration) regularly acts as a 

middleman with respect to property or 

services. 

Although the term middleman is not 

defined in the statute, the term is used 

in other tax information reporting rules 

to refer generally to persons acting in a 

variety of capacities relevant to the 

particular function, for example, making 

payment. See e.g., § 1.6049–4(a)(2)(ii) 

(the term ‘‘payor’’ includes a 

middleman as defined in § 1.6049– 

4(f)(4)); § 1.6049–4(f)(4)(i) (middleman 

means any person who makes payment 

of interest for, or collects interest on 

behalf of, another person, or who 

otherwise acts in a capacity as 

intermediary between a payor and a 

payee, and also includes a trustee). 

Outside tax law, however, the term is 

used more broadly to include persons 

that make referrals to others so that 

these others can negotiate a sale 

between themselves in addition to those 

that act as agents for others. See e.g., 

Dickson Marine Inc. v. Panalpina, 179 

F.3d 331 (5th Cir. 1999). In Dickson 

Marine Inc., the court found that an 

intermediary making a referral was a 

middleman and not the agent of another 

person where that other person did not 

assert sufficient control over the 

intermediary to establish an agency 

relationship. See also Rauscher Pierce 

Refsnes, Inc. v. Great Sw. Savs., F.A., 

923 S.W2d 112, 115 (Tex. App.1996) 

(middleman means a broker whose 

‘‘duty consists merely of bringing the 

parties together so that, between 

themselves, they may negotiate a sale, 

. . . [without that broker] necessarily 

[acting as] the ‘agent’ of either party.’’) 

Thus, the middleman reference in 

section 6045(c)(1)(C) can be understood 

as broad enough to cover a person that 

is not an agent or principal to a 

transaction but brings parties together so 

that those parties can negotiate and 

finalize the transaction. That is, DeFi 

participants provide persons with 

technological services that enable those 

persons to carry out DeFi transactions. 

Treating section 6045(c)(1)(D) as a 

clarification of section 6045(c)(1)(C) 

renders it unnecessary to determine the 

full scope of the term middleman in 

section 6045(c)(1)(C) as applied to 

digital asset brokers. The legislative 

history to section 6045(c)(1)(D) supports 

this interpretation of section 

6045(c)(1)(D) as a clarifying change 

intended to eliminate the need to 

determine which digital asset 

participants might qualify as 

middlemen. See the Joint Committee on 

Taxation’s description of section 

6045(c)(1)(D) as a clarification of the 

then-existing broker definition to 

resolve uncertainty over whether certain 

market participants are brokers, as 

entered into the Congressional Record. 

167 Cong. Rec. S5702, 5703 (daily ed. 

August 3, 2021) (Joint Committee on 

Taxation, Technical Explanation of 

Section 80603 of the Infrastructure Act). 

This conclusion is also supported by the 

fact that the clarified broker definition, 

along with the other changes made by 

the Infrastructure Act to sections 6045, 

6045A, and 6050I, were estimated by 

the Joint Committee on Taxation to raise 

$28 billion over 10 years.10 In contrast, 

an interpretation of section 

6045(c)(1)(D) as confined to just 

middlemen acting as agents or 

principals would not have raised as 

much revenue because digital asset 

brokers acting in this capacity were 

already covered by the definition of 

broker under section 6045(c)(1)(C). 

The policy behind the statute’s 

clarification of the broker definition also 

supports this broader interpretation of 

section 6045(c)(1)(D). Congress 

extended the information reporting 

rules under section 6045 to digital assets 

to close or significantly reduce the 

income tax gap from unreported income 

and to provide information about these 

transactions to taxpayers. See 167 Cong. 

Rec. S5702, 5703 (daily ed. August 3, 

2021) (Joint Committee on Taxation, 

Technical Explanation of Section 80603 

of the Infrastructure Act). According to 

the Government Accountability Office 

(GAO), limits on third party information 

reporting to the IRS is an important 

factor contributing to the tax gap. GAO, 

Tax Gap: Multiple Strategies Are 

Needed to Reduce Noncompliance, 

GAO–19–558T at 6 (Washington, DC: 

May 9, 2019). Third party information 

reporting generally leads to higher 

levels of taxpayer compliance because 

the income earned by taxpayers is made 

transparent to both the IRS and 

taxpayers. An information reporting 

regime requiring reporting to the IRS on 

digital asset transactions would benefit 

tax compliance by helping to close the 

information gap with respect to digital 

assets. See TIGTA, Ref. No. 2020–30– 

066, The Internal Revenue Service Can 

Improve Taxpayer Compliance for 

Virtual Currency Transactions, 10 

(September 2020); GAO, Virtual 

Currencies: Additional Information 

Reporting and Clarified Guidance Could 

Improve Tax Compliance, 28, GAO–20– 

188 (Washington, DC: February 2020). 

Reducing the tax gap and providing 

information to taxpayers is no less 

important when a DeFi participant, 

acting as a middleman, provides parties 

with technological services that enable 

those parties to carry out the DeFi 

transaction. Indeed, clear information 

reporting rules that require reporting of 

gross proceeds from a sale of digital 

assets in DeFi transactions will help the 

IRS identify taxpayers who have 

engaged in these transactions. These 

rules will also remind taxpayers who 

engage in DeFi transactions that the 

transactions are taxable, thereby 

reducing the number of inadvertent 

errors or noncompliance on their 

Federal income tax returns. Any 

exception to the information reporting 

rules for DeFi participants that have 

access to the necessary information 

about the transactions simply because 

they are offering their services through 

software, instead of through human 

interaction, would reduce the 

effectiveness of the information 

reporting rules. Moreover, such an 

exception could have the unintended 

effect of incentivizing taxpayers to 

change how they undertake digital asset 

transactions, thus thwarting voluntary 

compliance and IRS enforcement efforts 

to identify taxpayers engaged in digital 

asset transactions that have not reported 

their income properly. 

3. Legislative History 

As support for interpreting section 

6045(c)(1)(D) as applicable only to 

persons acting as agents (or principals/ 

dealers), several comments cited to 

several statements made by Senators as 

the Infrastructure Act was being 

considered. For example, one comment 

cited Senator Portman’s statements 

made during a colloquy with Senator 

Warner (the colloquy), which referred to 

the intended purpose of the reporting 

rule not being ‘‘to impose new reporting 

requirements on people who do not 

meet the definition of brokers.’’ 167 

Cong. Rec. S6095 (daily ed. August 9, 


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11Laura Weiss, Wyden wants tweaks to 

infrastructure bill’s cryptocurrency rules, Roll Call 

(August 2, 2023), available at: https://rollcall.com/ 

2021/08/02/wyden-wants-tweaks-to-infrastructurebills-cryptocurrency-rules/ (last visited October 17, 

2024). 

12Ella Beres, Crypto Tax Enforcement Update: 

The New Broker Definition in the Information 

Reporting Requirement Provision of the 

Infrastructure Bill Aims to Exclude Node Operators, 

Miners, and Validators, Davis Wright Tremaine LLP 

(August 3, 2021); available at: https://

www.dwt.com/insights/2021/08/crypto-taxenforcement-update. 

13 Jason Brett, New Language For Crypto Tax 

Reporting Excludes Decentralized Exchanges, 

Miners Still Vulnerable, Forbes (August 2, 2021); 

available at: https://www.forbes.com/sites/ 

jasonbrett/2021/08/02/new-language-for-crypto-taxreporting-excludes-decentralized-exchangesminers-still-vulnerable/?sh=41b5027b5f56. 

2021). Several comments cited Senator 

Warner’s statements made during the 

colloquy referencing the intended 

application of the reporting rule to 

‘‘digital asset exchanges or hosted wallet 

providers, often called custodians, or 

other agents involved in effectuating 

digital asset transactions.’’ 167 Cong. 

Rec. S6095 (daily ed. August 9, 2021). 

Finally, another comment argued that 

Congress meant to limit the definition of 

broker to custodial brokers and 

referenced as support an article that 

quoted Senator Toomey saying that the 

definition of broker in the legislation 

was overly broad and ‘‘sweeps in 

nonfinancial intermediaries like miners, 

network validators, and other service 

providers . . . [that] never take control 

of a consumer’s assets and don’t even 

have the personal-identifying 

information needed to file a 1099 with 

the IRS.’’ 11

The Treasury Department and the IRS 

do not agree that these statements limit 

the Secretary’s authority under section 

6045(c)(1)(D) to only persons acting as 

agents (or principals/dealers). The plain 

language of the statute is the 

authoritative statement of a statute’s 

meaning, and that language does not 

impose any such limitation. Moreover, 

the Senators’ statements referred to in 

these comments, when read in full, 

reflect a fundamental concern with the 

potential application of section 

6045(c)(1)(D) to persons that do not 

have access to the information needed 

to be reported, such as certain validators 

and developers of computer hardware 

and software for unhosted wallets. This 

fundamental concern was also reflected 

in a compromise amendment the Senate 

considered that would have revised the 

broker definition to ‘‘any person who 

(for consideration) regularly effectuates 

transfers of digital assets on behalf of 

another person.’’ Importantly, this 

compromise amendment also included 

two rules of construction providing that 

the amended definition of broker shall 

not be construed to create any inference 

that such definition includes any person 

‘‘solely engaged in the business of—(A) 

validating distributed ledger 

transactions, without providing other 

functions or services, or (B) selling 

hardware or software for which the sole 

function is to permit persons to control 

private keys which are used for 

accessing digital assets on a distributed 

ledger.’’ See 167 Cong. Rec. S6131–2 

(daily ed. August 9, 2021) (Senate 

Amendment 2656). See also 167 Cong. 

Rec. S6096 (daily ed. August 9, 2021) 

(Senator Warner’s statement in the 

colloquy that persons solely engaged in 

validating transitions and persons solely 

engaged in selling hardware or software 

with the sole function of permitting 

someone to control private keys used to 

access digital assets will not be treated 

as brokers under the proposed 

compromise amendment). 

Although this compromise 

amendment was not adopted due to 

issues unrelated to the broker definition, 

the Treasury Department and the IRS 

have long held the view that the broker 

definition under section 6045(c)(1) 

should not apply to ancillary parties 

who cannot get access to information 

that is useful to the IRS. Indeed, 

notwithstanding the authority provided 

by section 6045(c)(1)(C) to treat 

middlemen as brokers, the section 6045 

regulations impose broker reporting 

obligations only on those market 

participants in the securities industry 

that have the requisite information 

about the securities sales of their 

customers even though other market 

participants that do not have this 

information also act as middlemen in 

carrying out these sales. See e.g., 

§ 1.6045–1(b)(2)(i) (stock transfer agent 

that ordinarily would not know the 

gross proceeds from sales not treated as 

broker); 1.6045–1(b)(2)(v) (floor broker 

that maintains no records with respect 

to the terms of sales not treated as 

broker). 

Several comments cited to private 

sector publications describing 

unenacted prior drafts of the 

Infrastructure Act legislation and in 

particular drafts of the broker definition 

to argue that the definition in section 

6045(c)(1)(D) cannot be interpreted to 

apply to DeFi platforms. According to a 

source cited by one comment, one prior 

draft would have provided that a broker 

includes ‘‘any person who (for 

consideration) regularly provides any 

service responsible for effectuating 

transfers of digital assets, including any 

decentralized exchange or peer-to-peer 

marketplace.’’ 12 According to another 

source cited by a different comment, 

another prior draft would have provided 

that a broker includes ‘‘any person who 

(for consideration) regularly provides 

any service or application (even if 

noncustodial) to facilitate transfers of 

digital assets, including any 

decentralized exchange or peer-to-peer 

marketplace.’’ 13 The Treasury 

Department and the IRS do not agree 

that these reported drafts of the broker 

definition support the more limited 

definition proposed by the comments. 

The text of the bills referred to in these 

comments does not reflect consideration 

by any member of Congress because 

these draft bills were not introduced. As 

such, they are not legislative history for 

the enacted amendments to section 

6045. 

One comment referenced several 

proposals to amend the current 

definition of broker that were 

introduced after the Infrastructure Act 

was enacted. These post-enactment 

proposals would limit the broker 

definition to persons who effect sales at 

the direction of their customers rather 

than persons who provide services 

effectuating transfers. See e.g., LummisGillibrand Responsible Financial 

Innovation Act, S. 2281, 118th Cong. 

802 (2023) (defining the term ‘‘broker’’ 

to mean ‘‘any person who (for 

consideration) stands ready in the 

ordinary course of business to effect 

sales of crypto assets at the direction of 

their customers’’); Keep Innovation in 

America Act, H.R. 1414, 118th Cong. 2 

(2023) (defining ‘‘broker’’ to include 

‘‘any person who (for consideration) 

stands ready in the ordinary course of 

a trade or business to effect sales of 

digital assets at the direction of their 

customers’’). The comment argued that 

these proposals indicate an intent to 

clarify the meaning of the broker 

definition under section 6045(c)(1)(D) so 

that the provision does not apply to 

DeFi participants. The Treasury 

Department and the IRS do not agree 

that the language within proposals to 

amend a statute offered after that statute 

is enacted are persuasive authority for 

how to interpret the meaning of the 

enacted statute. If anything, if the 

purpose of the proposed legislation is to 

change the language of the statute to 

prevent the application of the broker 

definition to DeFi participants, that 

would support the interpretation that 

the statute as enacted applies to such 

participants. 


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106938 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

14FATF (2018), Report to the G20 Leaders’ 

Summit, available at https://www.fatf-gafi.org/ 

content/dam/fatf-gafi/reports/Report-G20-LeadersSummit-Nov-2018.pdf. 

15FATF (2021), Updated Guidance for a RiskBased Approach, Virtual Assets and Virtual Asset 

Service Providers, ¶ 67–69, pp. 27–28, FATF, Paris. 

(2021 FATF Guidance), available at: https://

www.fatf-gafi.org/publications/ 

fatfrecommendations/documents/guidance-rbavirtual-assets-2021.html. 

16See FATF (2024), Targeted Update on 

Implementation of the FATF Standards on Virtual 

Assets and Virtual Asset Service Providers, ¶ 53, p. 

28. FATF, Paris, France, available at https://

www.fatf-gafi.org/content/dam/fatf-gafi/ 

recommendations/2024-Targeted-Update-VAVASP.pdf.coredownload.inline.pdf. 

17 International Standards for Automatic 

Exchange of Information in Tax Matters: CryptoAsset Reporting Framework and 2023 update to the 

Common Reporting Standard, OECD Publishing, 

Paris, June 8, 2023, available at: https://

www.oecd.org/en/publications/internationalstandards-for-automatic-exchange-of-informationin-tax-matters_896d79d1-en.html (Crypto-Asset 

Reporting Framework). 

18See Rules, Section IV.B., Crypto-Asset 

Reporting Framework. 

19 Markets in Crypto-Assets Regulation (MICA) 

Regulation (EU) 2023/1114 of the European 

Parliament and the Council of 31 May 2023 on 

markets in crypto-assets, Official Journal of the 

European Union, Volume 66, June 9, 2023, available 

at: https://eur-lex.europa.eu/eli/reg/2023/1114/oj 

(MICA). 

20OECD, Crypto-Asset Reporting Framework: 

Frequently Asked Questions, September 2024, 

available at https://www.oecd.org/content/dam/ 

oecd/en/topics/policy-issues/tax-transparency-andinternational-co-operation/faqs-crypto-assetreporting-framework.pdf. 21See Rules, Section IV.B, Crypto-Asset Reporting 

Framework. 

4. Comparison of the Broker Definition 

With Standards Applied by Other 

Governmental Bodies 

Several comments argued that the 

definition of broker as applied to digital 

assets should conform to standards 

developed by governmental bodies 

outside the purview of title 26. The 

Treasury Department and the IRS do not 

agree that rules or regulations outside 

the purview of title 26 should determine 

the scope of these final regulations. 

Several comments argued that the 

definition of broker as applied to digital 

assets should be confined to persons 

acting as agents so that it would be 

consistent with the standard 

recommended by the Financial Action 

Task Force (FATF), an intergovernmental body that includes the 

United States and 39 other member 

nations and aims to prevent global 

money laundering and terrorist 

financing. In 2018, FATF modified its 

recommendations to member nations to 

address virtual assets and virtual asset 

service providers (VASPs).14 In 2021, 

FATF issued updated guidance 

intended to help national authorities 

and private sector entities to develop 

and understand anti-money laundering/ 

counter-terrorism financing rules as 

applied to virtual asset activities and 

VASPs. This guidance specifically 

addresses DeFi arrangements.15 The 

Treasury Department and the IRS do not 

agree that the standard set forth in the 

2021 FATF Guidance is limited to 

persons acting as agents. The 2021 

FATF Guidance specifically states that 

creators, owners and operators, and 

some other persons who maintain 

control or sufficient influence in the 

DeFi arrangements, even if those 

arrangements seem decentralized, may 

fall under the FATF definition of a 

VASP when they provide or actively 

facilitate VASP services. Moreover, 

FATF’s Targeted Update on 

Implementation of the FATF Standards 

on VAs and VASPs issued in June 2024 

reports that nearly half of surveyed 

jurisdictions either require certain DeFi 

arrangements to be licensed or 

registered as VASPs. Over 40 percent of 

remaining surveyed jurisdictions 

reported taking steps to identify and 

address risks in the DeFi ecosystem.16

Several comments suggested that the 

broker definition under section 

6045(c)(1)(D) should be limited to 

custodial digital asset brokers so that it 

would be consistent with the broker 

reporting rules of other jurisdictions. As 

support, one comment cited the 

definition of ‘‘Reporting Crypto-Asset 

Service Provider’’ (RCASP) under the 

Crypto-Asset Reporting Framework 

(CARF),17 a framework for the automatic 

exchange of information between 

countries on crypto-assets developed by 

the Organisation for Economic Cooperation and Development (OECD), to 

which the United States is a party. 

Specifically, this comment argued that 

the proposed definition of broker would 

be inconsistent with the definition of 

RCASP, which provides that an RCASP 

includes someone that acts as a 

counterparty or intermediary in 

exchange transactions or that otherwise 

makes available a trading platform.18

Another comment argued that the 

definition of crypto asset services under 

the European Union’s Markets in 

Crypto-Assets Regulation (MICA) 19 also 

includes only centralized exchanges and 

custodial brokers. 

The Treasury Department and the IRS 

do not agree that the CARF definition of 

RCASP is inapplicable to DeFi 

participants. Indeed, a frequently asked 

question (FAQ) relating to this issue was 

recently published by the OECD 

Committee on Fiscal Affair’s Working 

Party 10, which is the OECD group that 

developed the CARF. The question 

addressed in the FAQ is whether the 

definition of RCASP excludes noncustodial services that effectuate 

exchange transactions.20 The term 

RCASP is defined as ‘‘any individual or 

Entity that, as a business, provides a 

service effectuating Exchange 

Transactions for or on behalf of 

customers, including [. . . ] by making 

available a trading platform.’’ 21 The 

FAQ answer explains that, for purposes 

of that definition, a trading platform 

may be made available by an individual 

or Entity with or without offering 

custodial services. Accordingly, the 

CARF definition of RCASP does not 

exclude DeFi participants. 

Finally, the Treasury Department and 

the IRS do not agree that the MICA 

definition of crypto-asset services is 

limited only to centralized exchanges 

and custodial brokers. Title 1, Article 3 

of MICA defines crypto-asset services to 

include the operation of a trading 

platform for crypto-assets and the 

custody and administration of cryptoassets on behalf of clients. Recital 22 of 

MICA makes it clear that crypto-asset 

services that are in part ‘‘performed in 

a decentralised manner’’ fall within its 

scope and excludes crypto-asset services 

only when they are ‘‘provided in a fully 

decentralised manner without any 

intermediary.’’ To the extent that 

assertedly decentralized DeFi cryptoasset service providers in fact have a 

degree of centralized control, MICA 

treats those service providers as within 

its scope. Moreover, financial laws or 

regulations of a non-U.S. government or 

union of governments do not determine 

the scope of U.S. tax rules. 

5. Miscellaneous Comments 

One comment suggested that the 

broker definition under section 

6045(c)(1)(D) is limited to custodial 

brokers because any application to noncustodial brokers would be an 

unprecedented expansion of the section 

6045 reporting obligations. As support 

for this position, this comment stated 

that the application of the transfer 

statement requirements under section 

6045A(a) to certain transfers of digital 

assets to brokers reflects Congress’s 

focus on custodial brokers because those 

rules apply only to transfers to custodial 

brokers. Additionally, this comment 

argued that the new reporting obligation 

under section 6045A(d), which requires 

reporting on certain transfers of digital 

assets from accounts maintained by a 

broker, also reflects Congress’s focus on 

custodial brokers. The Treasury 

Department and the IRS do not agree 

that the broker definition under section 

6045(c)(1)(D) is limited to only custodial 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106939 

digital asset brokers. Section 6045A(a) 

cross references section 6045(c)(1) for 

the definition of broker, and there is no 

custodial broker limitation in the 

definition of broker in section 

6045(c)(1). As discussed in the 

securities industry background in Part 

I.A. of this Summary of Comments and 

Explanation of Revisions, a securities 

broker may or may not hold customer 

assets in custody. The pre-TD 10000 

regulations applied to securities brokers 

whether or not they provide custodial 

services. Additionally, dealers that are 

brokers under section 6045(c)(1)(A) can 

transact with customers without 

providing custodial services to those 

customers. Members of barter exchanges 

that are brokers under section 

6045(c)(1)(B) can similarly exchange 

property or services with other members 

without the barter exchange holding 

custody of the traded property or 

services. See § 1.6045–1(e)(2)(i). Finally, 

the multiple broker rules under longstanding regulations illustrate fact 

patterns that demonstrate that not all 

persons treated as brokers under section 

6045 are custodial brokers. See e.g., 

§ 1.6045–1(c)(3)(iv) (cash on delivery) 

and (c)(4)(iii) and (iv) (Examples 3 and 

4). 

One comment suggested that the final 

regulations should treat as the broker 

only the DeFi participant that performs 

the actions without which the 

transaction could not be carried out. As 

the DeFi technology stack model shows, 

however, this proposed ‘‘but for’’ 

standard would most likely result in all 

the DeFi participants being treated as 

performing essential actions without 

which the transaction could not be 

carried out. The DeFi technology stack 

model shows that, in addition to the 

customer, there are multiple DeFi 

participants involved in causing a 

digital asset transaction to be carried 

out. Each of these DeFi participants 

provide services that are necessary to 

effectuate a transaction. The section 

6045 regulations treat multiple parties 

in the securities industry that are 

involved in effecting a securities 

transaction as brokers and include a 

multiple broker rule to avoid 

duplicative reporting. As is discussed in 

Part III.A.1. of this Summary of 

Comments and Explanation of 

Revisions, however, these final 

regulations treat only one of these DeFi 

participants as the broker based on a 

determination of which DeFi participant 

is in the best position to provide the 

necessary reporting on the digital asset 

transactions of customers. 

Several comments argued that 

retaining the broker definition in 

§ 1.6045–1(a)(1) of the pre-TD 10000 

regulations for digital asset broker 

reporting oversteps the statutory 

authority given to the Secretary because 

that definition fails to include a 

requirement that the broker’s activities 

be undertaken ‘‘regularly’’ and ‘‘for 

consideration’’ as required under 

section 6045(c)(1)(D). Another comment 

recommended that this ‘‘for 

consideration’’ requirement be added to 

the ‘‘trade or business’’ requirement in 

the broker definition under the 

regulations. The Treasury Department 

and the IRS do not agree that the broker 

definition fails to include these 

requirements. A broker is defined in 

§ 1.6045–1(a)(1) as ‘‘any person . . . 

that, in the ordinary course of a trade or 

business during the calendar year, 

stands ready to effect sales to be made 

by others.’’ Under Groetzinger v. 

Commissioner, 480 U.S. 23 (1987), 

persons ‘‘engaged in a trade or business 

. . . must be involved in the activity 

with continuity and regularity . . . for 

income or profit.’’ Accordingly, the 

requirement that the person effect sales 

in the ‘‘ordinary course of a trade or 

business’’ is sufficient to ensure that the 

person treated as a broker under section 

6045(c)(1)(D) ‘‘regularly’’ effects those 

sales ‘‘for consideration.’’ 

One comment requested further 

guidance on what the ‘‘for 

consideration’’ requirement means in 

the context of the DeFi industry. 

Another comment argued that the ‘‘for 

consideration’’ requirement in the 

statute requires that the person 

providing the effectuating services earn 

consideration from each specific 

transaction effectuated to be included in 

the broker definition. The Treasury 

Department and the IRS do not agree 

that the text of the statute mandates 

such a narrow interpretation of this 

requirement or that it is necessary for 

these final regulations to address its 

meaning in the context of the DeFi 

industry. The same ‘‘for consideration’’ 

requirement has existed in the broker 

definition under section 6045(c)(1)(C) 

for over forty years, yet there is no 

exception for brokers providing services 

on an overall flat-fee basis or as a 

percentage of total invested assets. 

Moreover, such an exception would 

likely incentivize DeFi participants or 

other brokers to modify their fee models 

to avoid reporting, a result that would 

thwart the goals of information 

reporting. 

III. Definitions of a Digital Asset 

Middleman and an Effectuating Service 

Section 1.6045–1(a)(21)(i) defines a 

digital asset middleman as any person 

who, with respect to a sale of digital 

assets, provides a facilitative service. 

Section 1.6045–1(a)(21)(iii)(B)(1) 

through (4) defines a facilitative service 

by referencing five specific services in 

which the broker acts either as an agent 

or a counterparty in a digital asset sale. 

As discussed in the Background, TD 

10000 reserved on the portion of the 

facilitative services definition included 

in proposed § 1.6045–1(a)(21)(iii)(A) 

that would have defined a facilitative 

service as any service that directly or 

indirectly effectuates a sale of digital 

assets, such as providing a party in the 

sale with access to an automatically 

executing contract or protocol, 

providing access to digital asset trading 

platforms, providing an automated 

market maker system, providing order 

matching services, providing market 

making functions, providing services to 

discover the most competitive buy and 

sell prices, or providing escrow or 

escrow-like services to ensure both 

parties to an exchange act in accordance 

with their obligations. 

Several comments argued that the 

proposed definition of facilitative 

services was too broad because it 

referred to services that both directly 

and indirectly effectuate sales of digital 

assets. Another comment argued that a 

standard that captures services that 

indirectly effectuate transactions would 

have no discernible limits. Several 

comments stated that this broad 

definition would apply the broker 

definition to internet browsers, 

smartphone manufacturers, internet 

service providers, and many other 

persons not even considered part of the 

DeFi industry because these participants 

arguably ‘‘indirectly’’ effectuate 

transactions. One comment said that the 

definition’s inclusion of services that 

‘‘indirectly’’ effectuate transactions 

would treat as brokers persons who are 

not in the chain of proceeds settlement, 

such as fund administrators, which 

provide ancillary administrative 

services relating to a sale. Many of these 

comments recommended narrowing the 

definition of facilitative service to only 

include services that directly effectuate 

a sale. 

The Treasury Department and the IRS 

agree that the proposed facilitative 

services definition’s reference to 

services that indirectly effectuate sales 

of digital assets is too broad. The 

Treasury Department and the IRS did 

not intend to include in the definition 

of broker persons not within the DeFi 

industry, such as internet service 

providers, internet browsers, or 

computer or smartphone manufacturers. 

Accordingly, to address this concern, as 

discussed in Parts III.A. through III.C. of 

this Summary of Comments and 

Explanation of Revisions, the final 


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22This preamble also uses the trading front-end 

services term in describing the comments received 

even when those comments refer to these services 

using different terms, such as user interface services 

or application programming interface. 

regulations narrow the scope of DeFi 

participants that meet the definition of 

a digital asset middleman. Additionally, 

to make it clear that the reach of the 

digital asset middleman definition in 

this regard is not any broader than the 

broker definition under section 

6045(c)(1)(D), the final regulations 

change the term facilitative services 

used in the proposed definition of 

digital asset middleman to the term 

effectuating services. 

One comment stated that the 

definition of facilitative services would 

capture all participants described in the 

DeFi technology stack model resulting 

in duplicative reporting. Another 

comment stated that the facilitative 

services definition results in disparate 

treatment for DeFi participants in a 

digital asset transaction than is applied 

under current law to securities industry 

participants providing analogous 

services in a securities transaction. For 

example, this comment argued that the 

NYSE and Nasdaq are not brokers for 

section 6045 purposes, but analogous 

businesses in the DeFi industry would 

be brokers under the proposed 

facilitative services definition. 

Although, as discussed in Part II.B.1.b. 

of this Summary of Comments and 

Explanation of Revisions, the definition 

of broker under section 6045(c)(1)(D) is 

broad enough to include multiple DeFi 

participants involved in a DeFi 

transaction, the Treasury Department 

and the IRS have determined that such 

a broad definition could result in 

duplicative reporting. Accordingly, the 

Treasury Department and the IRS have 

determined that in these final 

regulations the only DeFi participants 

that should be treated as brokers are 

trading front-end service providers. This 

determination was made for several 

reasons, which are discussed in more 

detail in the remainder of this Part III. 

of this Summary of Comments and 

Explanation of Revisions. First, such 

providers are the DeFi participants that 

have the closest relationship to 

customers and therefore are in the best 

position to obtain customer 

identification information. Second, 

numerous commenters expressed 

concerns regarding, in the view of the 

comments, the difficulty in identifying 

operators of DeFi trading applications 

and the potential difficulty such 

operators would have in changing the 

potentially immutable code of those 

DeFi trading applications. Those 

concerns are not as salient to trading 

front-end service providers because 

those providers typically are legal 

entities or individuals and the software 

used to provide trading front-end 

services is not immutable. Accordingly, 

the persons responsible for carrying out 

broker diligence and reporting will be 

easy for taxpayers and the IRS to 

identify, and those providers have the 

capability to modify their operations to 

comply with these regulations. 

Appropriately, these DeFi participants 

are also the participants that provide 

services that are most analogous to the 

functions performed by brokers in the 

securities industry. 

A. Interface Layer Activities 

1. In General 

In addition to other listed services, 

the proposed regulations would have 

included in the definition of facilitative 

services certain services that are 

described in the DeFi technology stack 

model as interface layer services and 

which are referred to in this preamble 

as trading front-end services. 

Specifically, proposed § 1.6045– 

1(a)(21)(iii)(A) would have included in 

the definition of facilitative services any 

service that provides a party in the sale 

with access to an automatically 

executing contract or protocol or digital 

asset trading platform. To illustrate the 

meaning of providing a party with such 

access, proposed § 1.6045–1(b)(17) 

(Example 17) describes a website that 

matches buyers and sellers of digital 

assets and thereafter directs such buyers 

and sellers to use automatically 

executing contracts to settle their 

matched transactions and concludes 

that the website is an example of 

providing these access services. 

One comment suggested that instead 

of referring to the services that provide 

‘‘access to an automatically executing 

contract or protocol or digital asset 

trading platform,’’ the final regulations 

should refer to these services as ‘‘frontend services’’ because the front-end 

term captures not only the visual 

elements provided by a website that 

offers these services but also the 

software that powers the interactive 

features of the website or mobile app, 

such as forms, buttons that initiate 

actions, and dynamic page updates 

without full page refreshes. The 

Treasury Department and the IRS agree 

with this recommendation and have 

adopted the front-end services 

terminology referred to herein as trading 

front-end services.22

One comment stated that DeFi 

systems, including those created by 

software developers, operators of DeFi 

protocols, and trading front-end service 

providers, are purely software 

infrastructure used for communication 

and coordination. This comment argued 

that these services are akin to those of 

a phone service provider, and therefore 

none of these DeFi participants 

participate in the buying or selling of 

digital assets. Another comment 

asserted that the definition of facilitative 

services should not apply to trading 

front-end services used by customers to 

interact with DeFi trading applications 

because these services are merely 

informational services, much like those 

provided by Google, Yahoo! Finance, or 

Wikipedia to internet users seeking 

information. This comment argued that, 

in all these cases, the service provider 

is merely generating and displaying 

information in response to user inputs, 

and, as such, should not be treated as 

carrying out what the user does with the 

provided information. Another 

comment suggested that trading frontend services should not be treated as 

facilitative services because these 

services are merely tools that are used 

by customers to access the DeFi 

ecosystem. Another comment similarly 

argued that trading front-end service 

providers merely provide tools through 

which customers can participate on 

their own in a DeFi transaction. This 

comment likened coded trade order 

instructions to a torque wrench that a 

person purchases to repair their own car 

as opposed to engaging a licensed 

mechanic who already owns a torque 

wrench to repair the person’s car. One 

comment argued that the final 

regulations should treat DeFi trading 

applications as brokers, not trading 

front-end service providers. In contrast 

to these comments, a few comments 

acknowledged that trading front-end 

service providers should be the DeFi 

participant treated as brokers that are 

required to report under section 6045. 

One comment requested that the final 

regulations clarify that trading front-end 

service providers are brokers. This 

comment also noted that the software 

used by trading front-end service 

providers to perform these services can 

be modified and customized to comply 

with regulatory requirements and are 

already being modified by some market 

participants to comply with anti-money 

laundering (AML) and Know Your 

Customer (KYC) obligations under the 

Bank Secrecy Act (BSA) (31 U.S.C. 5311 

et seq.). 

The Treasury Department and the IRS 

agree that the suite of services offered by 

a trading front-end service provider, 

including the generation of customized 

coded trade order instructions, are 


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23See OFAC, Frequently Asked Questions: 

Questions on Virtual Currency: 560, available at: 

https://home.treasury.gov/policy-issues/financialsanctions/faqs/560 (discussing OFAC compliance 

obligations for transactions using digital currency). 

provided through software that is used 

for communication and coordination of 

functions on the distributed ledger 

network. The Treasury Department and 

the IRS do not agree, however, that 

persons providing trading front-end 

services that enable their customers to 

interact with DeFi trading applications 

are akin to those of a phone service 

provider or are merely providing 

informational services like that of a 

search engine or that such services are 

analogous to buying off-the-shelf tools 

to repair one’s own car because trading 

front-end services enable customers to 

engage in DeFi transactions. As 

discussed in Part I.B.1. of this Summary 

of Comments and Explanation of 

Revisions, trading front-end service 

providers offer a suite of services that 

enable their customers to view an array 

of choices relating to their proposed 

trades, to input their proposed trades, 

and then to initiate the additional steps 

necessary to trade their digital assets by 

interacting with other DeFi participants 

operating within the distributed ledger 

network. The suite of trading front-end 

services also includes, in some cases, 

interacting with customers in advance 

of a trade order to obtain their 

permission for a DeFi trading protocol 

to move digital assets out of the 

customers’ wallets and converting these 

customer permissions into software 

code that can later interact with the 

DeFi trading protocol when a 

transaction is executed by the DeFi 

trading protocol. Once the customer 

authorizes the transaction, the coded 

trade order instructions prepared by the 

trading front-end services determine the 

subsequent steps in the transaction as it 

is processed, including calling the 

applicable DeFi protocol’s automatically 

executing contracts for automatic 

execution and settlement if the 

transaction is included in a block and 

added to the blockchain by a validator. 

Consequently, not only do the suite of 

services offered by the trading front-end 

service provider supply the customer 

with information, but these services are 

also essential and integral to enabling 

the customer’s order to be 

communicated, understood, and 

executed by the other DeFi participants 

operating within the distributed ledger 

network. Accordingly, the suite of 

services provided by a trading front-end 

service provider are not analogous to a 

torque wrench used to repair one’s own 

car because, once customers authorize 

or sign the transaction in their wallets, 

the functions conducted thereafter 

within the distributed ledger network 

are all initiated by the services provided 

by the trading front-end service provider 

(including the coded trade order 

instructions) whereas buyers of torque 

wrenches need to use their own skill to 

repair their cars. In the former case, the 

services provided to the customer 

effectuate the transaction via the coded 

trade order instructions whereas in the 

latter case, the buyer of the torque 

wrench, not the torque wrench itself, 

repairs the car. 

Additionally, it should be noted that 

trading front-end services are analogous 

to the services provided by securities 

brokers in the securities industry. When 

a securities broker receives an investor’s 

order to sell securities, it will generally 

have some mechanism to verify the 

order details. The securities broker will 

then route the order to a securities 

exchange or other trading center for 

execution or fill or match the order 

internally. If a transaction is ultimately 

executed, the transaction information 

typically will be sent to a clearing 

organization that will record and settle 

the transaction by moving the traded 

securities and funds between the 

appropriate accounts. That is, once the 

customer has provided the trade order 

details to the securities broker and 

authorized the transaction, the 

remaining steps in a transaction that is 

executed by a securities exchange or 

other trading center take place pursuant 

to the securities broker’s 

communications with other market 

participants. The securities broker 

functions as the recipient of the 

customer’s order and the intermediary 

that typically communicates the 

customer’s trade order to other market 

participants for eventual execution of 

that order. 

Like the services provided by 

securities brokers in the securities 

industry, a trading front-end service 

provider receives a customer’s trade 

order, verifies the order details, and 

obtains confirmation from the customer. 

Although the trading front-end service 

provider may not obtain the customer’s 

final authorization for the transactions 

or transmit the coded trade order 

instructions to the distributed ledger 

network, the services provided by the 

trading front-end service provider 

enable the customer’s trade order to be 

communicated to the other DeFi 

participants, including the specific DeFi 

trading protocol called by the coded 

instructions and the other DeFi 

participants operating on the settlement 

layer, to execute the transaction. Indeed, 

the coded trade order instructions 

provided by the trading front-end 

service provider are analogous to the 

coded trade order instructions that a 

securities broker sends to a securities 

exchange or other trading center in a 

traditional securities transaction and are 

essential to carrying out the overall 

transaction. Accordingly, because these 

trading front-end services provide 

essential services that enable their 

customers to carry out DeFi 

transactions, the Treasury Department 

and the IRS have determined that it is 

also appropriate to treat these services 

as effectuating services. 

Further, the Treasury Department and 

the IRS understand that trading frontend services are typically offered by a 

legal entity or individual, which means 

there is a person within the meaning of 

section 7701(a)(1) that would be 

obligated to comply with broker 

reporting. Additionally, because persons 

providing trading front-end services 

generally host websites, these persons 

provide services that interact directly 

with customers undertaking DeFi 

transactions. Indeed, there generally is 

an agreement between trading front-end 

service providers and their customers, 

under which, as part of customary 

onboarding procedures, customers are 

treated as having agreed to general terms 

and conditions. These agreements may 

be part of the compliance program used 

by trading front-end service providers to 

assess the customer’s suitability with 

respect to economic sanctions programs 

administered and enforced by Treasury 

Department’s Office of Foreign Assets 

Control (OFAC).23 As such, a person 

providing trading front-end services is 

the DeFi participant that is closest to the 

customer. In contrast, as discussed in 

Part III.B. of this Summary of Comments 

and Explanation of Revisions, some 

comments argued that DeFi trading 

applications are not operated by persons 

within the meaning of section 7701(a) 

and do not interact directly with the 

customer undertaking DeFi transactions. 

Additionally, unlike the potentially 

immutable code used by DeFi trading 

applications, the suite of services 

provided by trading front-end service 

providers typically utilize software that 

is mutable. Accordingly, the Treasury 

Department and the IRS have 

determined that it is appropriate to treat 

trading front-end service providers as 

brokers under section 6045(c)(1)(D) for 

the following reasons. First, trading 

front-end service providers are the DeFi 

participants that have the closest 

relationship to the customers and 

therefore are in the best position to 

obtain customer identification 

information. Second, trading front-end 


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24Like centralized brokers, however, these 

trading front-end service providers treated as 

brokers are not required to report on the 

transactions identified in Notice 2024–57, 2024–29 

I.R.B. 67 (July 15, 2024), for which brokers are not 

required to make a return under section 6045(a) 

until further guidance is issued. 

service providers are legal entities or 

individuals that can be identified by 

taxpayers and the IRS. Third, trading 

front-end service providers typically do 

not utilize immutable code in providing 

these services and therefore can make 

changes to their operations to comply 

with these regulations. Therefore, with 

respect to any digital asset sales 24

effected by these brokers that are subject 

to reporting, these brokers must file 

Forms 1099–DA, Digital Asset Proceeds 

From Broker Transactions, to report the 

information required by that form as 

appropriate and must retain the 

information for seven years as required 

to be retained by § 1.6045–1(d)(11)(i), 

such as the transaction ID of the 

reported transaction and the digital 

asset address from which the digital 

asset was transferred in connection with 

the sale. In addition, the required 

information must also be made available 

for inspection upon request by the IRS. 

For a discussion of the reasons why the 

Secretary exercised discretion in not 

treating other DeFi participants, such as 

persons that operate DeFi trading 

applications and persons that perform 

functions on the settlement layer, as 

brokers under section 6045(c)(1)(D), see 

Parts III.B. and III.C. of this Summary of 

Comments and Explanation of 

Revisions. 

Several comments argued that the 

facilitative services definition should 

not apply to trading front-end service 

providers (including certain unhosted 

wallet providers as discussed in Part 

III.A.2. of this Summary of Comments 

and Explanation of Revisions) because 

the customer must authorize the 

transaction in the customer’s wallet 

after the wallet receives the coded trade 

order instructions from the trading 

front-end service provider and because 

it is the customer’s wallet, not the 

trading front-end service provider, that 

sends the coded trade order instructions 

to the distributed ledger. One comment 

asserted that trading front-end service 

providers do not monitor whether a 

customer deploys the coded trade order 

instructions received from the trading 

front-end service provider, just as an 

encyclopedia does not monitor whether 

a reader uses information obtained from 

its pages. Another comment argued that, 

to be consistent with standards applied 

by other offices of the Treasury 

Department, these final regulations must 

adopt the standard used by the 

Financial Crimes Enforcement Network 

(FinCEN) 

in its guidance relating to virtual 

currencies. See Fin–2019–G001, 

Application of FinCEN’s Regulations to 

Certain Business Models Involving 

Convertible Virtual Currencies, May 9, 

2019 (2019 FinCEN Guidance). 

Specifically, in the view of this 

comment, FinCEN’s 2019 Guidance 

looked to whether a user had ‘‘total 

independent control over the value [of 

digital assets]’’ in determining whether 

digital asset businesses providing 

services to that user are money services 

businesses subject to AML obligations 

under the BSA and FinCEN’s 

implementing regulations. See 31 CFR 

chapter X. 

The Treasury Department and the IRS 

considered these comments but do not 

agree that trading front-end service 

providers should be excluded from the 

broker definition for the following 

reasons. First, although it may be the 

wallet, and not the trading front-end 

service provider, that sends the coded 

trade order instructions to the 

distributed ledger network, it is the 

coded trade order instructions generated 

by the suite of services offered by the 

trading front-end service provider that 

ultimately call for the interaction with 

the DeFi trading protocol’s 

automatically executing contracts and, 

once the transaction is selected for 

validation and included in a block, 

cause the validator to settle the 

transaction. These trading front-end 

services provide an essential 

communication function 

notwithstanding that the coded trade 

order instructions may not be broadcast 

to the distributed ledger network by the 

trading front-end service provider. 

In addition, although the preamble to 

TD 10000 looked to the application of 

the BSA’s AML obligations as support 

for the conclusion that operators of 

custodial digital asset trading platforms, 

digital asset hosted wallet providers, 

and digital asset kiosks have 

information about their customers, the 

Treasury Department and the IRS are 

not required to follow the BSA or the 

2019 FinCEN Guidance in determining 

whether trading front-end service 

providers should be brokers under 

section 6045(c)(1)(D). The AML 

obligations in FinCEN’s regulations 

issued under the BSA apply generally to 

financial institutions, whereas 

information reporting under section 

6045 applies to persons included in the 

definition of broker under section 

6045(c)(1). Because section 6045 did not 

condition the definition of broker on 

such person being a financial institution 

under the BSA, the extent to which 

AML obligations apply to trading frontend service providers does not limit the 

Secretary’s ability to treat such persons 

as brokers under section 6045(c)(1)(D). 

Cf. section 6050I(c)(1)(B) (explicit 

reference to BSA). 

These final regulations are issued 

under title 26, and this preamble 

therefore does not address the proper 

interpretation of FinCEN’s total 

independent control standard in the 

2019 FinCEN Guidance. In any event, 

the Treasury Department and the IRS do 

not agree that a total independent 

control standard is the appropriate 

standard for determining whether a 

DeFi participant, such as a trading frontend service provider, provides a service 

that effectuates a transfer of digital 

assets as required by section 

6045(c)(1)(D), or that a user of trading 

front-end services has sole control over 

its assets when it uses a trading frontend service. Trading front-end service 

providers offer a suite of services that 

include the translation of the customer’s 

trade order input into coded trade order 

instructions that ultimately call for the 

interaction of the customer’s digital 

assets with the DeFi trading application 

and, once the transaction is selected for 

validation and included in a block, 

cause the validator to settle the 

transaction. For example, these coded 

trade order instructions specify the 

number and type of digital assets to be 

removed from the customer’s wallet and 

the type of digital assets to be deposited 

into the customer’s wallet in exchange. 

Additionally, the trading front-end 

services also may include obtaining the 

customer’s permission for the DeFi 

protocol to remove digital assets out of 

the customer’s wallet and translating 

that permission into a separate set of 

instructions that will be broadcast to the 

distributed ledger for use by the DeFi 

protocol in future transactions 

authorized by the customer. Moreover, 

in some cases, a trading front-end 

service provider might take control of 

the customer’s digital assets by routing 

the customer’s digital assets to an 

address controlled by the trading frontend service provider. Accordingly, 

despite not holding the digital asset 

customer’s private keys, once the 

customer authorizes or signs the 

transaction, the services provided by the 

trading front-end service provider 

exercise a degree of control over the 

customer’s digital assets involved in 

transactions. 

Numerous comments argued that 

trading front-end service providers 

should not be treated as brokers because 

they are unable to backup withhold 

from the digital assets disposed by the 

customer in the transaction or the 


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digital assets received in the transaction 

because trading front-end service 

providers do not have custody of the 

private keys used for accessing a 

customer’s digital assets. Another 

comment recommended that, if trading 

front-end service providers are treated 

as brokers, they should be exempt from 

any obligation to backup withhold in 

DeFi transactions. The final regulations 

do not adopt these comments. Backup 

withholding is an essential enforcement 

tool to ensure that complete and 

accurate information returns can be 

filed by brokers with respect to 

payments made to their customers. 

Accurate taxpayer identification 

numbers (TINs) provided by the 

customers of brokers and other 

information provided by brokers are 

critical to matching such information 

with income reported on a customer’s 

Federal income tax return. Customers 

that fail to provide their TINs to a broker 

as requested may be liable for penalties 

under section 6723 of the Code. A 

complete exception from backup 

withholding for DeFi sales of digital 

assets would increase the likelihood 

that customers will not provide correct 

TINs to their brokers. Trading front-end 

service providers exercise a degree of 

control over their customer’s digital 

assets once the transaction has been 

authorized or signed in the customer’s 

unhosted wallet to withhold their fees 

from the customer’s digital assets and 

can similarly satisfy their obligation to 

backup withhold from either the digital 

assets disposed by the customer in the 

transaction or the digital assets received 

in the transaction should the customer 

fail to provide its name, address, and 

TIN. The Treasury Department and the 

IRS are aware, however, that not all 

arrangements between trading front-end 

service providers and their customers 

currently provide for backup 

withholding. The Treasury Department 

and the IRS intend to publish a notice 

of proposed rulemaking under 

§ 31.3406(h)–2(b) with proposed 

regulations that would provide trading 

front-end service providers with greater 

flexibility to satisfy their backup 

withholding obligations with respect to 

these transactions. 

One comment argued that the delivery 

of application-programming interfaces is 

merely the provision of hardware or 

software that enables customers to 

access digital assets, and the legislative 

history is clear that such activities ought 

not cause a person to be a broker. The 

Treasury Department and the IRS agree 

that persons that provide applicationprogramming interface services, which 

is another name for trading front-end 

services, write the software code that 

translates the details of the customer’s 

trade order into coded trade order 

instructions. The Treasury Department 

and the IRS do not agree that the 

definition of broker should turn on the 

technological nature of the services 

provided. Instead, the definition should 

turn on what those services do. Because 

trading front-end service providers 

provide services that their customers 

need in order to engage in DeFi 

transactions and that are designed 

specifically for that purpose, that is, by 

offering a menu of transactions for a 

customer to choose from and translating 

the details of the customer’s trade order 

into coded trade order instructions that 

are used to communicate with other 

DeFi participants in order to engage in 

DeFi transactions, it is appropriate to 

treat these services as effectuating 

transfers of digital assets under section 

6045(c)(1)(D). 

Several comments argued that 

because some digital asset users can 

themselves write the software code that 

is included in the coded trade order 

instructions, trading front-end service 

providers that provide this software 

coding service should not be treated as 

brokers. The final regulations do not 

adopt this comment because trading 

front-end service providers offer a suite 

of services to customers that enable 

them to engage in DeFi transactions. 

Moreover, that some sophisticated 

digital assets users are able to interact 

with DeFi trading protocols without the 

services provided by trading front-end 

service providers should not affect the 

obligation of trading front-end service 

providers to report on the transactions 

of customers that do utilize their 

services. Additionally, as discussed in 

Part III.B. of this Summary of Comments 

and Explanation of Revisions, the IRS 

intends to evaluate the information 

reported by trading front-end service 

providers and the extent to which 

changes in the industry enable retail 

digital asset users to use DeFi trading 

applications without using trading 

front-end services. 

In sum, for all these reasons, the 

Treasury Department and the IRS have 

concluded that trading front-end 

services that enable customers to 

interact with DeFi trading applications 

should be treated as effectuating 

services for purposes of the digital asset 

middleman rule. Accordingly, final 

§ 1.6045–1(a)(21) defines a digital asset 

middleman as any person who is 

responsible for providing an effectuating 

service with respect to a sale of digital 

assets. Final § 1.6045–1(a)(21)(i) defines 

an effectuating service as any trading 

front-end service where the person 

providing that service ordinarily would 

know or be in a position to know the 

nature of the transaction (as defined in 

final § 1.6045–1(a)(21)(iii)(B) and 

discussed in Part III.A.3. of this 

Summary of Comments and 

Explanation of Revisions) or any other 

service set forth in § 1.6045– 

1(a)(21)(iii)(B)(1) through (5) (previously 

referred to as a facilitative service in TD 

10000). The final regulations use the 

term ‘‘trading front-end service’’ rather 

than ‘‘front-end service’’ to make it clear 

that only the front-end services that 

enable customers to interact with DeFi 

trading applications are included in the 

effectuating services definition. 

Specifically, final § 1.6045– 

1(a)(21)(iii)(A)(1) limits the definition of 

a trading front-end service to a service 

that, with respect to a sale of digital 

assets, receives a person’s order to sell 

and processes that order for execution 

by providing user interface services, 

including graphic and voice user 

interface services, that are designed to: 

(i) enable such person to input order 

details with respect to transactions to be 

carried out or settled on a distributed 

ledger or similar technology; and (ii) 

transmit those order details so that the 

transaction can be carried out or settled 

on a distributed ledger or similar 

technology, including by transmitting 

the order details to the person’s wallet 

in such form that, if authorized or 

signed by the person, causes the order 

details to be transmitted to a distributed 

ledger network for interaction with a 

digital asset trading protocol. The 

Treasury Department and the IRS are 

aware that technology evolves rapidly. 

Accordingly, this definition is intended 

to apply broadly to any front-end 

service that enables customers to input 

their order details for interaction with a 

digital asset trading protocol regardless 

of the order of the steps necessary to 

carry out that transaction on the 

distributed ledger network. It is also 

intended that this definition will apply 

to any front-end service that enables 

customers to interact with aggregation 

protocols as well as digital asset trading 

protocols. 

Additionally, final § 1.6045– 

1(a)(21)(iii)(A)(2) provides additional 

rules for determining whether services 

are trading front-end services. First, 

services are defined as trading front-end 

services without regard to whether the 

digital assets received upon execution of 

the transaction at a digital asset address 

in the wallet controlled by the person 

using the trading front-end services to 

dispose of digital assets (first person) or 

at a digital asset address in a wallet 

controlled by a second person, 


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including the provider of the front-end 

services itself. Thus, for example, if a 

first person uses services that otherwise 

meet the definition of trading front-end 

services to exchange digital asset A for 

digital asset B and the order details 

include an instruction to deliver digital 

asset B to a digital asset address in a 

wallet controlled or owned by a second 

person, for example, as a payment, the 

services provided by the front-end 

service provider will be treated as 

trading front-end services. 

Final § 1.6045–1(a)(21)(iii)(A)(2) also 

provides that the transmission of order 

details to a distributed ledger network 

for interaction with a digital asset 

trading protocol includes the direct or 

indirect transmission to a distributed 

ledger network of order details that call 

upon or otherwise invoke the functions 

of automatically executing contracts that 

comprise a digital asset trading protocol. 

Accordingly, the addition of 

intermediate steps before the digital 

asset customer’s transaction can be 

broadcast to a distributed ledger 

network or before the transaction can 

otherwise cause the interaction with a 

digital asset trading protocol, whether 

for business purposes or in an attempt 

to avoid meeting the trading front-end 

services definition, will not prevent the 

services provided by the trading frontend service provider from being treated 

as trading front-end services. Thus, for 

example, the transmittal of a customer’s 

order details for interaction with a DeFi 

aggregator application before interaction 

with a specific DeFi trading protocol 

that offers the most favorable 

transaction terms is an indirect 

transmission to a distributed ledger 

network for interaction with a digital 

asset trading protocol described in final 

§ 1.6045–1(a)(21)(iii)(A)(1)(ii). This rule 

would not, however, treat basic speechto-text interface services that merely 

translate customer’s voice commanded 

trade orders to written text orders as 

trading front-end services because basic 

text-to-speech interface services do not 

invoke the functions of the DeFi 

protocol as required by final § 1.6045– 

1(a)(21)(iii)(A)(1)(ii). Instead, the 

translated speech-to-text trade order 

would be sent to a trading front-end 

service provider that would, in turn, 

convert that written trade order into 

coded trade order instructions. 

In addition, final § 1.6045– 

1(a)(21)(iii)(C) provides exceptions for 

certain wallet services and validation 

services, which exceptions are 

discussed in Parts III.A.2. and III.C. of 

this Summary of Comments and 

Explanation of Revisions. Additionally, 

final § 1.6045–1(a)(21)(iii)(D) defines a 

digital asset trading protocol as a 

distributed ledger application consisting 

of computer software, including 

automatically executing contracts, that 

exchange one digital asset for another 

digital asset pursuant to instructions 

from a user. 

One comment requested guidance 

regarding whether persons that offer 

front-end services for users to provide 

liquidity to liquidity pools or users to 

stake their assets through staking pools 

that issue receipts or tokens in exchange 

for the users’ digital assets would be 

treated as brokers under the broker 

definition. Although the definition of 

trading front-end services under these 

final regulations could apply to frontend services that enable users to 

contribute their digital assets to 

liquidity pools and to staking pools in 

exchange for receipts or tokens, brokers 

are not required to make returns on 

these transactions under section 6045 

until a determination has been made 

that these transactions are subject to 

such reporting. See Sections 3.03 and 

3.04 of Notice 2024–57, 2024–29 I.R.B. 

67 (July 15, 2024). The Treasury 

Department and the IRS anticipate that 

any termination to the no-reporting 

relief in Notice 2024–57 for such 

transactions will take into account that 

the termination may cause persons not 

currently required to report to start 

doing so and therefore such persons 

would need some time to build or buy 

systems to comply with reporting. 

Finally, in response to the comment 

requesting clarification as to whether 

providing staking as a service could 

cause the provider to be treated as a 

broker, to the extent that such services 

do not give rise to the sale of a digital 

asset, the provision of those services 

would not cause the provider to be 

treated as a broker. 

2. Unhosted Wallet Services 

Proposed § 1.6045–1(a)(21)(iii)(A) 

included two sentences in the proposed 

definition of facilitative services that 

addressed the extent to which unhosted 

wallet services were included in the 

definition. The first sentence would 

have specifically excluded from the 

definition of facilitative services the 

selling of hardware or the licensing of 

software for which the sole function is 

to permit persons to control private keys 

which are used for accessing digital 

assets on a distributed ledger if such 

functions are conducted by a person 

solely engaged in the business of selling 

such hardware or licensing such 

software. The second sentence 

illustrated the limits of this proposed 

exclusion by stating that software that 

provides users with direct access to 

trading platforms from the wallet 

platform is not an example of software 

with the sole function of providing 

users with the ability to control private 

keys to send and receive digital assets. 

Proposed § 1.6045–1(b)(23) (Example 

23) illustrated the wallet exclusion rule 

by describing a wallet that neither 

provides ‘‘access’’ nor ‘‘connection 

services’’ to a digital asset trading 

platform, and proposed § 1.6045– 

1(b)(22) (Example 22) illustrated the 

limits of the wallet exclusion rule by 

describing a wallet that provides 

‘‘access’’ to a digital asset trading 

platform. 

One comment argued that the wallet 

exclusion rule’s application only to 

wallets the ‘‘sole function’’ of which is 

to permit persons to control private keys 

was too narrow because the purpose of 

wallet software is to allow users to 

interact with other blockchain addresses 

(including smart contracts). The 

Treasury Department and the IRS do not 

agree that this exclusion is too narrow. 

The rationale behind the wallet 

exclusion was to exclude ancillary 

parties who cannot obtain information 

about sales of digital assets. Senator 

Warner’s statements made during the 

colloquy make it clear that he intended 

this wallet exclusion to be limited to 

providers of those wallets for which the 

only function is to permit persons to 

control private keys which are used for 

accessing digital assets on a distributed 

ledger. 167 Cong. Rec. S6095–6 (daily 

ed. August 9, 2021). Senator Warner’s 

expressed intent to provide only a 

limited exclusion for wallet providers is 

made even more clear when he said 

later in the colloquy, ‘‘[o]f course, if 

these [wallet providers] . . . provide 

additional services for consideration 

that would qualify as brokerage, the 

rules would apply to them as any other 

broker.’’ 167 Cong. Rec. S6096 (daily ed. 

August 9, 2021). 

Many comments argued for a 

complete exclusion from the facilitative 

services definition for wallet services 

because, the comments stated, wallet 

providers and wallet developers 

typically do not have the information 

necessary to know the nature of 

transactions processed nor are they 

generally able to obtain that 

information. One comment stated that 

once the private key is exported, the 

wallet provider may not even be aware 

that a transaction happened if the 

transaction originates with a third-party 

trading front-end service provider, even 

though the digital assets disposed of in 

the transaction are removed from the 

user’s wallet and the digital assets 

received in the transaction are received 

in the user’s wallet. Another comment 

stated that unhosted wallet providers 


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may be able to see the digital assets 

leaving a wallet, but they cannot know 

the underlying details of the transaction. 

One comment stated that unhosted 

wallet providers do not typically know 

the functionality of a given protocol that 

a wallet user interacts with using the 

user’s wallet. 

As discussed in Part I.B. of this 

Summary of Comments and 

Explanation of Revisions, providers of 

unhosted wallets often provide 

customers with an assortment of 

services. Because the rationale behind 

the wallet exclusion is to exclude 

ancillary parties who cannot obtain 

information about sales of digital assets, 

it is important to examine each of these 

services to determine if they enable the 

person providing the wallet services to 

obtain information about customers’ 

sales of digital assets contained in the 

wallet. Services provided by the wallet 

for key storage and transaction 

authorization are performed in every 

transaction undertaken with digital 

assets in the customer’s wallet. These 

services, however, do not provide any 

information to the person providing the 

wallet services regarding the underlying 

nature of the transaction. Services 

enabling customers to transfer native 

and non-native digital assets on the 

distributed ledger similarly do not 

provide any information to the person 

providing the wallet services regarding 

the underlying nature of the transaction. 

Additionally, the connection that 

enables a customer to go to a third-party 

trading front-end service provider for 

trading front-end services also does not 

provide the person providing the wallet 

services with information with respect 

to the transaction because the coded 

trade order instructions in that case are 

created by the third-party trading frontend service provider. Thus, despite the 

transaction being sent to the customer’s 

wallet for authorization or signature 

before it is then transmitted by the 

wallet to the distributed ledger for 

interaction with the DeFi trading 

application, the person providing the 

wallet services does not have visibility 

into the coded trade order instructions 

if the instructions are created by a thirdparty trading front-end service provider. 

Accordingly, the Treasury Department 

and the IRS have determined that it is 

appropriate to treat all these basic wallet 

services as excluded from the definition 

of effectuating services under the final 

regulation. 

In contrast, when the person 

providing the wallet services also 

provides trading front-end services for a 

transaction, this wallet provider creates 

the coded trade order instructions that 

includes the specifics of the customer’s 

trade order. In that circumstance, the 

person providing these enhanced wallet 

services has the information about the 

underlying sale. Additionally, these 

persons also interact directly with their 

customers and, as such, can obtain the 

customer’s identity. Accordingly, it is 

appropriate in these cases to treat these 

enhanced wallet trading front-end 

services as effectuating services under 

the final regulation and a person 

providing these enhanced wallet 

services as a digital asset middleman. 

Several comments requested guidance 

regarding the extent to which a 

developer of wallet software that 

provides a service that is considered to 

be a ‘‘service effectuating’’ transfers 

should be treated as a provider of that 

service. The extent to which a software 

developer would be treated as the 

provider of the software’s services is a 

question of fact that depends on how 

the software sale or licensing 

transaction is structured and the 

activities provided by the software 

developer thereafter. For example, if a 

developer licenses or sells the 

developed software to a third party, who 

thereafter uses the software without any 

continuing involvement by the software 

developer to provide wallet services to 

customers, the software developer 

would not be the provider of the wallet 

services. In contrast, if the software 

developer licenses the wallet services 

directly to customers, the developer 

would be the provider of the wallet 

services. The Treasury Department and 

the IRS disagree with the comment in so 

far as it can be read to suggest that the 

final regulations should incorporate 

additional guidance regarding each 

potential factual scenario. 

One comment stated that persons 

providing unhosted wallet services do 

not know the identities of their 

customers taking part in the transaction. 

Another comment stated that these 

persons may have difficulty determining 

who is the beneficial owner of the 

digital assets held within the wallet, 

such as when more than one customer 

knows the private key or when one 

person opens an account on behalf of 

another person. The Treasury 

Department and the IRS do not agree 

that persons providing wallet services 

are not able to obtain the identities of 

their customers. On the contrary, a 

person providing wallet services is the 

DeFi participant in the best position to 

obtain that information because there 

generally is an agreement between the 

person providing wallet services and the 

customer under which, as part of 

customary onboarding procedures, such 

customers are treated as having agreed 

to general terms and conditions. Those 

terms and conditions can address the 

need to obtain customer identification 

information. Although, as suggested by 

the comments, it may be difficult for the 

person providing wallet services to be 

certain that the person controlling the 

private keys in the wallet is the 

beneficial owner of the digital assets 

held within the wallet, this concern is 

no different from any other business 

that transacts with customers 

electronically. 

Many comments stated that, taken 

together, the wallet exclusion in the 

proposed regulations would result in 

treating all providers of wallet software 

as brokers. Several comments argued 

that this wallet exclusion was too 

narrow because all wallet software 

provides users with ‘‘access’’ to digital 

asset trading platforms, thus, no wallet 

provider will qualify for the exclusion. 

Several comments stated that the wallet 

exception’s reference to software that 

provides wallet users with ‘‘direct 

access to trading platforms from the 

wallet platform’’ made it difficult to 

understand how the overall wallet 

exclusion was intended to apply 

because ‘‘trading platform’’ and ‘‘wallet 

platform’’ were not defined in the 

proposed regulations. One comment 

argued that the wallet connection 

services referred to in proposed 

§ 1.6045–1(b)(23) (Example 23) should 

not be considered a facilitative service 

because this software merely permits a 

wallet user to authorize transactions 

involving digital assets in the user’s 

wallet with respect to a transaction 

initiated outside of the wallet. Some 

comments argued that this broad 

application of the facilitative services 

definition to persons providing wallet 

services was inconsistent with the 

stated intent of the proposed regulations 

and the legislative history of the 

amendment to section 6045. 

Several comments argued that the 

wallet services described in the wallet 

exclusion rule should not be limited to 

persons ‘‘solely’’ engaged in the 

business of selling such hardware or 

licensing such software. These 

comments argued that even if a person 

is engaged in other activities that 

constitute acting as a broker with 

respect to one transaction, those 

activities should not affect whether the 

person is a broker with respect to the 

wallet services described in the wallet 

exclusion provided with respect to a 

second transaction. That is, when a 

person who is a wallet provider engages 

in broker activities with respect to the 

first transaction, this does not affect 

whether that wallet provider can obtain 

the information necessary to report the 

second transaction. Several comments 


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argued that a precise interpretation of 

the wallet exclusion rule as written 

would result in treating wallet providers 

that conduct any other activities (even 

non-business hobbies) as providing 

facilitative services and as brokers for 

all activities. Another comment argued 

that although a well-advised wallet 

provider could put exempt activities 

into different legal entities to achieve a 

more rational result, it would be more 

appropriate to modify the rule to 

remove this restriction. Another 

comment suggested that this 

requirement would create a ‘‘cliff effect’’ 

for wallet providers, whereby a wallet 

provider that offers one service that falls 

within the broker definition will be 

treated as a broker for all transactions 

undertaken by customers using that 

provider’s wallet services. 

The Treasury Department and the IRS 

agree that the exclusion for wallet 

services should not be limited to 

persons that are ‘‘solely’’ engaged in the 

business of selling such hardware or 

licensing such software. Additionally, 

the requirement should not cause wallet 

providers to be brokers for all 

transactions undertaken by customers 

using that provider’s wallet services if 

the provider offers one service that falls 

within the broker definition. For that 

reason, final § 1.6045–1(a)(21)(iii)(C)(2) 

provides that if a person licenses 

software or sells hardware that provides 

unhosted wallet services that include 

both trading front-end services with 

respect to some sales of digital assets 

and other services that are not trading 

front-end services (or other effectuating 

services under final § 1.6045– 

1(a)(21)(iii)(B)) with respect to other 

sales of digital assets, then that person 

will be treated as providing effectuating 

services only with respect to the sales of 

digital assets that are carried out using 

the trading front-end services provided 

by the unhosted wallet. Accordingly, 

persons providing unhosted wallet 

services must make information returns 

with respect to customer sales that are 

undertaken using the wallet’s trading 

front-end services, but those persons are 

not required to make information 

returns with respect to customer sales 

that are undertaken using a third-party 

front-end service provider’s trading 

front-end services. A wallet provider 

that does not provide trading front-end 

services but provides other effectuating 

services described in final § 1.6045– 

1(a)(21)(iii)(B), however, would 

nonetheless be required to report on 

customer sales effected using those 

other services. Thus, for example, if a 

person providing unhosted wallet 

services also operates a digital asset 

kiosk, that person would be required to 

report on sales of digital assets 

undertaken by customers using that 

kiosk even if the digital assets sold were 

stored in an unhosted wallet provided 

by that person. Additionally, § 1.6045– 

1(b)(2)(x) (Example 2) has been 

modified to conform to this final rule. 

3. Position To Know 

Under proposed § 1.6045–1(a)(21)(i), a 

person performing facilitative services 

with respect to a sale would meet the 

definition of a digital asset middleman 

only if the nature of the services 

arrangement is such that the person 

ordinarily would know or be in a 

position to know the identity of the 

party that makes the sale and the nature 

of the transaction potentially giving rise 

to gross proceeds from the sale. 

a. Position To Know the Identity of the 

Customer 

Proposed § 1.6045–1(a)(21)(ii)(A) 

would have treated a person as 

ordinarily knowing or in a position to 

know the identity of the party that 

makes the sale if that person maintains 

sufficient control or influence over the 

provided facilitative services so as to 

have the ability to set or change the 

terms under which its services are 

provided to request that the party 

making the sale provide that party’s 

name, address, and TIN, in advance of 

the sale. The proposed rule also would 

have treated this sufficient control or 

influence standard as being met if the 

person providing the facilitative 

services has the ability to change the 

fees charged for those services. 

Several comments recommended that 

the final regulations retain only the 

ordinarily would know standard as 

applied to knowing the identity of the 

customer. Other comments stated that 

the position to know standard has no 

reasonable limitation because virtually 

any provider could theoretically request 

customer information or modify the 

terms of its arrangement or fee structure. 

Several comments criticized the new 

standard because it does not use an 

objective test but rather an ‘‘ability’’ 

standard which is not based on the DeFi 

participant’s business model but instead 

is based on hypothetical circumstances. 

One comment asserted that persons that 

provide wallet services and applicationprogramming interface services do not 

meet the position to know standard with 

respect to a customer’s identity because, 

the comment stated, these providers 

have no information on the customer. In 

contrast, several comments stated that 

providers of user interface services have 

sufficient control or influence to add the 

services necessary to comply with the 

position to know standard and the 

proposed broker reporting requirements. 

Indeed, one comment stated that these 

interfaces can be modified and 

customized to comply with regulatory 

requirements and are already being 

modified by some market participants to 

permit AML/KYC compliance. 

As discussed in Part III.A.1. of this 

Summary of Comments and 

Explanation of Revisions, persons that 

provide trading front-end services work 

directly with customers to translate 

their trade order details into coded trade 

order instructions for later use. These 

services are provided pursuant to 

general terms and conditions that the 

customers agree to as part of customary 

onboarding procedures. Accordingly, 

trading front-end services can update 

these general terms and conditions as 

necessary to learn the identity of their 

customers. Given that trading front-end 

service providers have access to their 

customers and, therefore, can query 

them about their identity, the Treasury 

Department and the IRS have 

determined that it is not necessary in 

the final regulations to include the 

position to know standard as applied to 

the identity of the party that makes the 

sale. It should be noted that there is 

currently no knowledge standard for 

any other brokers regarding the identity 

of the customer because these rules only 

treat persons that have access to 

customers as brokers. 

b. Position To Know the Nature of the 

Transaction 

Proposed § 1.6045–1(a)(21)(ii)(B) 

would have treated a person as 

ordinarily knowing or in a position to 

know the nature of the transaction 

potentially giving rise to gross proceeds 

from a sale if that person maintains 

sufficient control or influence over the 

facilitative services provided to have the 

ability to determine whether and the 

extent to which the transfer of digital 

assets involved in a transaction gives 

rise to gross proceeds, including by 

reference to the consideration that the 

person receives or pursuant to the 

operations of, or modifications to, an 

automatically executing contract or 

protocol to which the person provides 

access. The proposed rule also would 

have treated this sufficient control or 

influence standard as being met if the 

person providing the facilitative 

services has the ability to change the 

fees charged for those services. 

One comment asserted that persons 

that provide application-programming 

interface services do not meet the 

position to know standard with respect 

to the nature of the transaction because 

these providers have no information on 


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whether the underlying transaction 

actually took place. Another comment 

agreed with the proposed position to 

know standard’s reference to sufficient 

control or influence because it is 

consistent with the FATF standard, 

which provides that creators, owners, 

and operators or some other persons 

who ‘‘maintain control or sufficient 

influence’’ in the DeFi arrangements 

may fall under the FATF definition of 

a VASP where they are providing or 

actively facilitating VASP services. 2021 

FATF Guidance at ¶ 67, p. 27. Several 

comments stated that trading front-end 

service providers do not have visibility 

into the nature of the transaction 

because they do not monitor whether a 

customer deploys, through the 

customer’s wallet, the coded trade order 

instructions that they provided. One 

comment questioned whether a person 

meets this standard if the person needs 

to implement technological changes to 

be in a position to know the nature of 

the transaction. Several comments 

requested that the final regulations 

eliminate the position to know standard 

and instead only apply the ordinarily 

would know standard because the 

position to know standard would force 

trading front-end service providers to 

modify their services to comply with the 

final regulations. One comment 

explained that although some trading 

front-end service providers might 

receive contingent trade-based fees, 

others receive non-contingent payments 

for their services. For example, this 

comment stated that some trading frontend services provided by blockchain 

explorers provide services that require 

considerable sophistication for 

customers to use and, as a result, receive 

their compensation from sources other 

than these customers, such as 

advertising revenue, donations, or sales 

of blockchain data. Trading front-end 

service providers might alternatively 

receive non-contingent periodic 

payments under a services agreement 

with a DeFi governance organization, 

such as a foundation or decentralized 

autonomous organization (DAO). This 

comment stated that, in the case of a 

services agreement with a DeFi 

governance organization, a trading frontend service provider might collect data 

on protocol use (such as, the number of 

transactions and average transaction 

size) in setting its periodic fees. The 

comment argued that the reviewed data 

on the protocol is anonymized by the 

blockchain technology and not specific 

enough to the transactions undertaken 

pursuant to the front-end’s services to 

provide definitive information about 

whether these transactions were 

authorized or signed by the customer 

and then settled on the distributed 

ledger. Finally, regarding the proposed 

rule’s reference to a person’s ability to 

change its fees in determining whether 

a person has sufficient control or 

influence over its services, one 

comment requested that final 

regulations provide more guidance 

regarding what is meant by fees charged. 

The Treasury Department and the IRS 

do not agree that trading front-end 

service providers do not have the ability 

to know if a transaction for which they 

provided coded trade order instructions 

was ultimately executed and settled on 

the distributed ledger. As stated by the 

referenced comment, trading front-end 

service providers may receive 

contingent, trade-based fees as 

consideration for their services. To 

ensure that these fees are paid, trading 

front-end service providers include in 

the coded trade order instructions a 

direction for the requisite fee (whether 

withheld from the traded-away digital 

assets or the traded-for digital assets) to 

be sent to a wallet address owned by the 

trading front-end service provider. 

Because this fee will not be paid unless 

the customer authorizes the transaction 

in the customer’s wallet and the 

transaction is settled on the distributed 

ledger, the receipt of these fees provides 

the trading front-end service provider 

with the information necessary to know 

that the transaction took place. Trading 

front-end service providers that receive 

non-contingent fees for their services 

also have the ability to determine 

whether a transaction created through 

their trading front-end services was 

carried out. For example, these 

providers could include in the coded 

trade order instructions a direction to 

notify the trading front-end service 

provider when the transaction is settled 

on the distributed ledger similar to the 

way the sender of an email can receive 

a read receipt. Indeed, these providers 

inherently have more information about 

the transaction than other persons 

searching the blockchain, so they are in 

a better position to obtain relevant 

information from the blockchain. 

Although these final regulations may 

require trading front-end service 

providers receiving non-contingent 

consideration to make changes in the 

coded instructions solely for the 

purpose of complying with these broker 

reporting rules, this is not different from 

any other broker that makes changes in 

their operations to comply with these 

broker reporting rules. Accordingly, 

regardless of the structure of the trading 

front-end service provider’s 

compensation, trading front-end service 

providers maintain control or sufficient 

influence over the suite of services that 

they offer (including the coded trade 

order instructions) to have the ability to 

determine whether and the extent to 

which the transfer of digital assets 

involved in a transaction gives rise to 

gross proceeds. 

Although trading front-end service 

providers should always be treated as 

maintaining control or sufficient 

influence over the suite of services that 

they offer (including the coded trade 

order instructions) to meet the position 

to know standard, the final regulations 

nevertheless have retained a modified 

version of the proposed position to 

know standard to ensure that other 

front-end service providers that might 

inadvertently be treated as providing 

trading front-end services under final 

§ 1.6045–1(a)(21)(iii)(A) will not be 

treated as providing an effectuating 

service under this definition. 

Accordingly, pursuant to final § 1.6045– 

1(a)(21)(ii), a person providing a trading 

front-end service ordinarily would 

know or be in a position to know the 

nature of the transaction potentially 

giving rise to gross proceeds from a sale 

of digital assets if that person maintains 

control or sufficient influence over the 

trading front-end services to have the 

ability to determine whether and the 

extent to which the transfer of digital 

assets involved in a transaction gives 

rise to gross proceeds. The sufficient 

control or influence language used in 

the proposed regulations is modified to 

control or sufficient influence to draw 

from the language used in the 2021 

FATF guidance. See 2021 FATF 

Guidance at ¶ 67, p. 27. 

Final § 1.6045–1(a)(21)(ii) also adds 

three examples of when a person would 

meet this control or sufficient influence 

standard. These examples are not 

intended to be the exclusive examples 

that would meet this standard. First, the 

section provides that a person providing 

trading front-end services will be 

considered to maintain control or 

sufficient influence over such services if 

that person has the ability to amend, 

update, or otherwise substantively affect 

the terms under which the services are 

provided or the manner in which the 

order is processed. Second, similar to 

the proposed regulations’ reference to a 

person’s ability to change their fees in 

determining whether a person has 

sufficient control or influence over its 

services, final § 1.6045–1(a)(21)(ii) 

provides that a person that has the 

ability to collect the fees charged for the 

trading front-end services from the 

transaction flow (that is, from the digital 

assets disposed or the digital assets 

received in the trade order) would be 


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treated as a person that maintains 

control or sufficient influence over the 

trading front-end services provided. 

This result would apply whether or not 

the person providing trading front-end 

services actually collects fees in this 

manner for its services. Third, final 

§ 1.6045–1(a)(21)(ii) provides that a 

person providing trading front-end 

services will be considered to maintain 

control or sufficient influence over such 

services if that person has the ability, in 

connection with processing the order, to 

add to the order a sequence of 

instructions to query the distributed 

ledger to determine if the processed 

order is, in fact, executed or to use 

another method of confirmation based 

on information known to that person as 

a result of providing the trading frontend services. In contrast, a front-end 

service provider that provides services 

that enable a website to be accessed on 

a computer or mobile device but does 

not translate the customer’s trade order 

into coded trade order instructions that 

can be sent to the customer’s wallet for 

authorization would not be considered 

maintaining sufficient control or 

influence over the services provided to 

know the nature of the transaction. 

Finally, to ensure that trading front-end 

service providers do not take steps to 

artificially avoid meeting the position to 

know standard, final § 1.6045– 

1(a)(21)(ii) provides that, except as 

provided by the Secretary, a contractual 

or other restriction not required by law 

that limits the ability of the person 

providing trading front-end services to 

amend, update, or otherwise 

substantively affect the terms under 

which the services are provided or the 

manner in which the order is processed 

will be disregarded for purposes of 

determining if a person meets the 

position to know standard. Thus, 

trading front-end service providers 

cannot contract with their customers or 

with operators of digital asset trading 

protocols to limit their coding ability to 

avoid falling within the effectuating 

services definition. 

4. Other Policy Considerations 

Several comments raised policy 

considerations in opposing the 

application of the digital asset 

middleman rules to DeFi participants. 

Some of these comments focused 

specifically on front-end service 

providers while others focused on DeFi 

trading applications or more generally 

on any DeFi participant that ultimately 

could be made subject to these rules. 

Several comments noted that because 

DeFi participants do not have custody of 

the digital asset user’s private keys, they 

are not currently subject to any 

comprehensive regulatory oversight, 

such as rules requiring the 

implementation of cyber-security 

programs, business continuity or 

disaster recovery programs, or 

comprehensive insurance policies. One 

comment suggested that not being 

required to turn over personally 

identifiable information (PII), including 

their names, addresses, and TINs, is a 

key reason why digital asset users 

engage with DeFi tools and that adding 

this requirement would deter these 

users from interacting with DeFi trading 

applications. One comment argued that 

developers of DeFi systems should not 

be treated as brokers because they face 

much steeper difficulties in setting up 

information collection and reporting 

regimes because they have historically 

focused on technology development 

rather than financial services. 

The Treasury Department and the IRS 

do not agree that DeFi participants 

should be excluded from the 

information reporting rules under 

section 6045 because of a lack of 

financial services experience or because 

of a purported lack of comprehensive 

regulatory oversight. Persons with 

technology expertise that operate trades 

or businesses relating to financial 

services should comply with the same 

rules as any other person operating 

financial services businesses. Regarding 

the regulatory oversight comments, 

these final regulations concern Federal 

tax laws under the Internal Revenue 

Code only. The purported absence of 

regulatory oversight under any other 

legal regime that is outside the scope of 

these regulations does not govern the 

implementation of a provision under 

title 26. Therefore, the Treasury 

Department and the IRS are not bound 

to use those regimes as models in 

determining whether DeFi participants 

should be required to comply with an 

entirely separate set of information 

reporting rules under section 6045. 

Several comments argued that the 

application of the final regulations to 

DeFi participants would jeopardize the 

security of millions of Americans’ 

personal data because DeFi participants 

are too small and undercapitalized to be 

able to store PII safely. The Treasury 

Department and the IRS did not adopt 

this comment for the final regulations 

because traditional brokers, including 

smaller brokers, have operated for many 

years and have implemented their own 

security policies and protocols. 

One comment stated that many DeFi 

participants are run by anonymous 

providers, which further increases the 

risk to customer PII. Another comment 

warned that if front-end service 

providers are treated as brokers under 

the final regulations, well-meaning 

front-end service providers and their 

customers are likely to fall victim to 

security breaches. This comment 

predicted the proliferation of ‘‘spoof’’ 

front-end service providers set up by 

nefarious actors to harvest the personal 

data of digital asset users. The Treasury 

Department and the IRS do not agree 

that these supposed risks justify not 

applying the information reporting rules 

under section 6045 to the DeFi industry. 

Information reporting is essential to the 

integrity of the tax system. The 

argument offered by these comments 

could be applied to every industry 

required to file information returns. The 

fact that nefarious actors could ‘‘spoof’’ 

such persons or otherwise compromise 

customer PII systems is not a reason to 

entirely abandon a reporting regime that 

is essential to ensuring that the income 

(and resulting income tax) from these 

transactions are reported by taxpayers. 

Like other businesses that are obligated 

to collect PII and file information 

returns with the IRS, trading front-end 

service providers can build their own 

technologically innovative data 

collection and storage systems or they 

can contract with reliable third-party 

vendors with expertise in securing 

confidential data to do the same on their 

behalf. 

One comment touted the policy 

benefits brought by the DeFi industry, 

including reduced dependence on 

traditional intermediaries, increased 

financial inclusion, stimulation of 

capital formation, and democratization 

of financial services for traditionally 

oppressed Americans. Another 

comment stated that the proposed rules 

reflect an anti-technology bias that 

would discourage the adoption of these 

innovative privacy-preserving peer-topeer payment technologies and 

jeopardize America’s competitiveness 

with foreign nations. Another comment 

suggested the application of the 

proposed reporting rules to DeFi was 

financial discrimination. One comment 

suggested that the recent collapse of 

digital asset custodial exchanges, such 

as FTX, supports not applying the 

reporting regulations to DeFi 

participants, such as unhosted wallets. 

The Treasury Department and the IRS 

do not agree that these final regulations 

reflect a bias against the DeFi industry 

or that these regulations will discourage 

the adoption of this technology by lawabiding customers. The information 

reporting rules under section 6045 have 

applied in some form to brokers in the 

securities industry for over 40 years. As 

Senator Portman’s statements made in 

the colloquy make clear, the digital asset 

reporting provisions were ‘‘designed to 


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bring more clarity and legitimacy to the 

cryptocurrency industry by more closely 

aligning the reporting requirements with 

those of more traditional financial 

services, and . . . in doing so will help 

provide more certainty for people 

looking to invest in digital assets.’’ 167 

Cong. Rec. S6096 (daily ed. August 9, 

2021). Beginning for sale transactions on 

or after January 1, 2025, the regulations 

promulgated in TD 10000 will also 

apply to brokers acting as agents or 

counterparties in their customer’s 

digital asset transactions. The 

application of these final regulations to 

the DeFi industry merely treats this 

industry like these other industries and 

thereby provides a benefit to the overall 

industry and to people investing in 

digital assets. Moreover, in addition to 

closing or significantly reducing the 

income tax gap from unreported 

income, one goal behind information 

reporting by brokers is to remind 

taxpayers who engage in DeFi 

transactions that these transactions are 

taxable and need to be reported on their 

Federal income tax returns. Therefore, 

these rules will also reduce the number 

of inadvertent errors or intentional 

misstatements shown on these 

taxpayers’ Federal income tax returns. 

Accordingly, these final regulations will 

result in trading front-end service 

providers being able to provide to their 

customers the same useful information 

regarding gross proceeds as custodial 

brokers will provide because of the 

application of TD 10000. Finally, these 

final regulations concern Federal tax 

laws under the Internal Revenue Code 

only. The potential policy benefits 

brought by the DeFi industry raised by 

these comments are outside the purview 

of title 26. 

Several comments argued that the 

final regulations should not apply to 

DeFi participants because these 

participants cannot report on the 

customer’s cost basis. One comment 

argued that the onus of reporting tax 

information in DeFi transactions should 

fall upon the customers of DeFi services, 

not DeFi participants providing those 

services. Other comments argued that 

the information reporting rules should 

not apply to DeFi transactions because 

these transactions are not so-called ‘‘offramp transactions’’ that convert the 

owner’s overall digital asset investment 

into a non-digital asset investment. The 

Treasury Department and the IRS do not 

adopt these comments. An exchange of 

one type of digital asset for another type 

of digital asset may be a taxable 

transaction despite it not being an offramp transaction. See Notice 2014–21, 

modified by Notice 2023–34, 2023–19 

I.R.B. 837 (May 8, 2023). In addition, 

notwithstanding that DeFi participants 

generally do not provide custodial 

services for their customers and thus 

would not be required to report on the 

customer’s cost basis in a sale 

transaction, this does not lessen the 

importance of information reporting for 

gross proceeds. Clear information 

reporting rules that require reporting of 

gross proceeds for taxpayers who engage 

in digital asset transactions will help the 

IRS identify taxpayers who have 

engaged in these transactions, and 

thereby help to reduce the overall tax 

gap. 

Several comments recommended that 

the final regulations take a more 

innovative approach to broker reporting. 

For example, one comment 

recommended that the final regulations 

create a third-party reporting person 

regime, partially modeled after existing 

regimes to streamline information 

reporting and withholding in the crossborder payment and employment 

contexts, with which DeFi trading 

applications and trading front-end 

service providers could contract to store 

customer PII and to file required 

information returns. One comment 

stated that it is possible to innovate and 

build AML compliant DeFi platforms. 

Another comment recommended the 

use of new types of digital asset tokens, 

called tax attestation tokens, that could 

support DeFi brokers in reporting the 

information required under section 

6045. The final regulations do not 

prescribe the tools that brokers must use 

in complying with the reporting 

requirements under section 6045. The 

Treasury Department and the IRS 

welcome input from the DeFi industry 

regarding regulatory reform or market 

developments that could facilitate 

innovative approaches to reporting 

information required under section 

6045. 

B. DeFi Application Activities 

Proposed § 1.6045–1(a)(21)(iii)(A) 

would have included in the definition 

of facilitative services any service that 

provides a party in the sale with an 

automated market maker system, order 

matching services, or market making 

functions. 

Many comments argued that the 

definition of facilitative services should 

not apply to persons operating DeFi 

trading applications, for a variety of 

different reasons. One comment stated 

that DeFi trading applications operate 

using immutable automatically 

executing software that cannot be 

changed to accommodate broker 

reporting. Another comment similarly 

stated that DeFi trading applications 

that are operated by DAOs cannot be 

altered because although these DAOs 

may allow votes by their governance 

token holders on smart contracts 

involving predetermined fee tiers and 

other predetermined matters, they do 

not allow votes on the overhaul of the 

entire application to build in the 

systems required for information 

reporting and backup withholding. In 

contrast, another comment stated that 

ownership of governance tokens is often 

concentrated among a small group of 

investors—perhaps even a majority held 

by a single investor—that can exercise 

complete control over the development 

of the protocol. Several comments stated 

that existing DeFi trading applications, 

which do not provide for information 

reporting, cannot start reporting or be 

shut down to avoid operating without 

complying with section 6045 

requirements because the existing smart 

contracts cannot be modified. One 

comment stated that some of DeFi 

trading applications generally do not 

have operators that are persons within 

the meaning of section 7701(a)(1) as 

support for the assertion that they could 

not be expecting to file and furnish 

information returns. One comment 

argued that DAO governance token 

holders and other operators of DeFi 

trading applications should not be 

brokers because they do not have access 

to DeFi customers and do not have the 

ability to maintain practical control over 

customers’ transactions conducted using 

the DAO or DeFi trading applications. 

Another comment requested more 

guidance with clear, objective 

percentage standards regarding whether 

governance token holders have control 

over a DAO, such as those provided in 

other areas of the tax law. See e.g., 

sections 957(a) (controlled foreign 

corporation); 267(f) (controlled group); 

304(c) (control). One comment argued 

that DeFi trading applications would 

not be in a position to know the 

customer’s identity if the transaction 

made use of ‘‘zero-knowledge proof’’ 

technology. Another comment asserted 

that there is no privity of contract 

between DeFi trading applications and 

digital asset users; therefore, it would be 

inappropriate to treat those operating 

these applications as brokers. One 

comment stated that although persons 

are involved in writing the underlying 

software code and deploying that 

software code within DeFi trading 

applications, these persons are not 

involved in running those applications 

once the code has been deployed. One 

comment requested that the final 

regulations permit operators of DeFi 

protocols (other than those that are fully 


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decentralized) to employ third-party 

service providers to assist in tracking 

the information about transactions that 

take place on the platform to comply 

with tax reporting. This comment stated 

that at least one DeFi protocol operator 

has already supported a tax services 

provider with tax-ready data and reports 

for its customers to use in filing their 

Federal income tax returns. 

The Treasury Department and the IRS 

do not agree with all of the assertions 

made by these comments. However, as 

discussed in Parts III. and III.A. of this 

Summary of Comments and Explanation 

of Revisions, the only DeFi participants 

that are treated as brokers in these final 

regulations are trading front-end service 

providers. As explained in Parts III. and 

III.A. of this Summary of Comments and 

Explanation of Revisions, trading frontend service providers typically are legal 

entities or individuals that can more 

easily be identified by taxpayers and the 

IRS; the software code they write is not 

immutable; they are best suited to 

obtain information from customers; and 

the services they provide are most 

analogous to the services provided by 

conventional securities brokers. 

Accordingly, the Treasury Department 

and the IRS have determined that 

operators of DeFi trading applications 

should not be treated as providing 

services that meet the definition of 

effectuating services under the final 

regulations, unless these DeFi trading 

application operators also provide other 

services that are determined to be 

included in the definition of 

effectuating services. 

DeFi trading applications provide a 

function that contributes to carrying out 

DeFi sale transactions much like the 

functions provided by established stock 

exchanges (such as the NYSE or the 

Nasdaq) contribute to carrying out 

securities transactions in the securities 

industry. These services are not 

analogous to functions performed by 

securities brokers in the securities 

industry. It should be noted that DeFi 

trading applications are unlike stock 

exchanges in that DeFi trading 

applications permit any digital asset 

user to transact directly with the 

application whereas stock exchanges 

prohibit retail investors from trading 

directly on these exchanges and only 

permit persons that are regulated 

members of the exchange (that is, 

broker-dealers) to trade on these 

exchanges. Although § 1.6045–1(b)(2)(ii) 

excludes stock exchanges from being 

treated as brokers, that exclusion is 

conditioned on those stock exchanges 

providing ‘‘facilities in which others 

effect sales.’’ This condition—along 

with the underlying regulatory 

requirements regarding membership in 

the exchanges—ensures that other 

brokers that are closer to the customer 

can provide the necessary reporting 

under section 6045. In contrast, 

operators of DeFi trading applications, 

including DAOs and their governance 

token holders, do not restrict access to 

the trading platform to regulated parties. 

The IRS intends to evaluate the 

information reported by trading frontend service providers and the extent to 

which changes in the industry enable 

digital asset users to use DeFi trading 

applications without using the services 

provided by trading front-end service 

providers. If the IRS learns that a 

significant amount of DeFi trading does 

not give rise to information reporting, 

the Treasury Department and the IRS 

may reconsider the scope of the 

definition of broker with respect to DeFi 

transactions. 

In specific response to the comments, 

the Treasury Department and the IRS 

have concluded that it is not necessary 

to determine at this time whether and to 

what extent DeFi trading applications 

are truly decentralized, the extent to 

which operators of DeFi trading 

applications (including governance 

token holders) can make changes to the 

underlying smart contracts and 

protocols to comply with broker 

reporting or hire third party service 

providers to do so, or whether operators 

of DeFi applications may not ever 

qualify as persons, within the meaning 

of section 7701(a) because these final 

regulations have determined that 

trading front-end service providers 

should be the only DeFi participants 

that are treated as the brokers under 

section 6045(c)(1)(D) and required to file 

information returns under section 6045 

with respect to DeFi sale transactions. 

For the same reason, it is not necessary 

for the Treasury Department and the IRS 

to determine the extent to which a DeFi 

trading protocol would be in a position 

to know their customers’ identities if the 

transaction makes use of technology that 

does not reveal the customer’s identity, 

such as zero-knowledge proofs or 

similar technology. 

One comment argued that the 

counterparty to a transaction carried out 

using a DeFi trading application may be 

a liquidity pool and not the person 

providing that liquidity (liquidity 

provider). Another comment asserted 

that if liquidity providers are treated as 

engaging directly in the activities of the 

DeFi trading application, they could be 

brokers under the proposed regulations 

even though they would not have any 

way to determine the identity of the 

customer. The Treasury Department and 

the IRS considered these comments and 

have concluded that it is also not 

necessary to determine at this time 

whether and to what extent liquidity 

providers are the counterparties in these 

transactions or can otherwise access 

information about the customer because 

these final regulations have determined 

that trading front-end service providers 

should be the only DeFi participants 

that are required to file information 

returns under section 6045 with respect 

to DeFi sale transactions. 

Several comments argued that nonfungible token (NFT) marketplaces are 

the same as DeFi trading protocols and 

other DeFi trading applications. These 

comments stated that developers of NFT 

marketplaces are incapable of knowing 

the transactions that are carried out by 

customers that use their marketplaces 

and cannot update their software to 

require customers to comply with the 

broker reporting requirements. Because 

these final regulations have determined 

that trading front-end service providers 

should be the only type of DeFi 

participant that is required to file 

information returns under section 6045 

with respect to DeFi sale transactions 

under these final regulations, the 

Treasury Department and the IRS have 

concluded that it is not necessary to 

determine at this time whether and to 

what extent NFT marketplaces operate 

like DeFi trading protocols. It should be 

noted, however, that persons that 

provide customers with trading frontend services to purchase or sell NFTs in 

exchange for other digital assets do 

provide effectuating services and are 

digital asset middlemen and brokers 

under these final regulations. 

One comment raised a concern 

regarding the extent to which a DAO 

would be treated as a person that 

regularly offers to redeem digital assets 

that it created or issued if it redeems 

‘‘receipt tokens’’ issued to help users 

track how much of a governance token 

has been placed into a smart contract for 

voting purposes, which receipt tokens 

have no value and serve only to allow 

the user to retrieve its governance 

tokens. The Treasury Department and 

the IRS did not intend for the 

redemption of receipt tokens used 

merely to keep track of voting history to 

be treated as sales subject to reporting 

under these regulations and will 

consider future guidance to clarify this 

intention. 

C. Settlement Layer Activities 

Proposed § 1.6045–1(a)(21)(iii)(A) 

would have provided that a facilitative 

service does not include validating 

distributed ledger transactions (whether 

through proof-of-work, proof-of-stake, or 

any other similar consensus 


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mechanism) without providing other 

functions or services if provided by a 

person solely engaged in the business of 

providing such validating services. 

Many of the comments agreed that 

validation services should be excluded 

from the broker definition. Applying the 

DeFi technology stack model discussed 

in Part I.B. of this Summary of 

Comments and Explanation of Revisions 

to the effectuating services definition, 

the Treasury Department and the IRS 

continue to maintain that it is 

appropriate to exclude validation 

services from the definition of 

effectuating services. The functions 

performed by DeFi participants at the 

settlement layer, such as block building 

and validation services, which are 

responsible for settling financial 

transactions on the distributed ledger, 

contribute to the execution of digital 

asset transactions much in the same way 

as clearing organizations, such as The 

Depository Trust and Clearing 

Corporation (DTCC) and its subsidiaries, 

contribute to the execution of securities 

transactions on a securities exchange. 

Like clearing organizations in the 

securities industry, participants at the 

settlement layer do not interact with the 

ultimate customer and, as such, do not 

generally have access to the information 

that would enable them to associate the 

customer’s identity with transactions 

settled by those participants. Indeed, in 

the securities industry, this lack of 

proximity to the customer—along with 

the fact that other participants are closer 

to the customer—supports not treating 

clearing organizations as brokers. See 

§ 1.6045–1(b)(2)(vii). Consistent with 

this understanding that participants at 

the settlement layer do not interact with 

the ultimate customer, several Senators 

expressed a concern with treating 

persons that perform validation services 

as brokers in the deliberations leading 

up to the passage of the Infrastructure 

Act. For example, Senator Portman said 

during the colloquy, ‘‘[w]e want to be 

sure that miners and stakers and others 

who play a key role in validating 

transactions now or in the future . . . 

will not be subject to the [broker 

reporting] rules for those activities.’’). 

167 Cong. Rec. S6096 (daily ed. August 

9, 2021). 

Several comments focused on the 

‘‘without providing other functions or 

services’’ limitation to the carve-out for 

validation services. One comment 

argued that when a validator performs 

other functions or services, it does not 

enhance a validator’s ability to know the 

identities of the parties whose 

transactions it validated. Another 

comment referenced the DeFi 

technology stack model to argue that the 

regulations should more clearly exempt 

all settlement layer service providers 

from the definition of broker. Numerous 

other comments provided descriptions 

of additional functions that they said 

either were a component of validation 

services or otherwise should be treated 

similarly to validation services. 

Specifically, these comments urged the 

Treasury Department and the IRS to 

exclude ordering services, block 

arranging services, block-proposing 

services, communication node operation 

services and other similar network 

services that operate on the settlement 

layer. One comment suggested that 

persons that record transactions on 

secondary networks that are built on top 

of (or beside) a primary distributed 

ledger (layer 2 blockchains) using 

sequencer software should be treated 

like validators for this purpose. 

Similarly, another comment pointed out 

that to facilitate more transactions, some 

distributed ledgers enable transactions 

to be aggregated on a layer 2 blockchain 

before being recorded as a single 

transaction on the primary distributed 

ledger. In these cases, this comment 

asserted that persons that validate 

transactions on this secondary network 

should be excluded. Another comment 

suggested excluding validators that 

participate in so-called liquid staking 

protocols. One comment argued that 

unhosted wallet providers, DeFi 

protocols, and price discovery services 

should be excluded as analogous to 

validators. 

As discussed in Part III.A.1. of this 

Summary of Comments and 

Explanation of Revisions, the Treasury 

Department and the IRS have 

determined that the only DeFi 

participant that should be treated in 

these final regulations as providing 

effectuating services for purposes of the 

reporting rules under section 6045 in a 

sale is the DeFi participant that provides 

trading front-end services. Accordingly, 

an exclusion for validation services— 

which are not trading front-end 

services—is technically no longer 

necessary. Nevertheless, given the 

strong concern expressed by members of 

Congress and others in the industry that 

these ancillary services be excluded, the 

final regulations retain this exclusion 

for validation services and expand it to 

also include those services necessary to 

complete the validation. It is intended 

that block building as well as the 

operation of communication nodes 

would be included in the other services 

necessary to complete the validation, 

and thus excluded from the definition of 

effectuating services. Without 

expressing any view regarding the 

extent to which the other services raised 

by the comments are analogous to these 

validation services, the Treasury 

Department and the IRS have 

determined that it is not appropriate to 

expand the exclusion from the 

definition of effectuating services for 

validation services any further. First, as 

noted, the exclusion is not necessary 

now that trading front-end services are 

the only DeFi services that are treated as 

effectuating services. As long as these 

other services do not fit within the 

definition of trading front-end services, 

they will not be treated as effectuating 

services under the final regulations. 

Second, the list of services that are not 

trading front-end services is potentially 

infinite and can change over time. It is 

not practical or appropriate to draft a 

list of all the services within the DeFi 

industry that do not fit within the 

definition of trading front-end services. 

Several comments argued that the 

proposed carve-out for validation 

services is too narrow because it would 

be limited to persons ‘‘solely’’ engaged 

in the business of providing distributed 

ledger validation services. These 

comments argued that the exclusion 

should remain available even for 

persons who are engaged in more than 

one trade or business or providing more 

than one type of service. Another 

comment pointed out that, as drafted, 

the carve-out seemingly would not 

apply to persons conducting validation 

services only as a hobby or without a 

profit motive. One comment 

recommended that the exclusion instead 

be based on the functions or services 

conducted with respect to the 

transaction. Another comment 

requested additional examples to clarify 

the circumstances in which validation 

services would be considered 

facilitative services. 

The Treasury Department and the IRS 

agree that the carve-out for validation 

services should not be limited to 

persons that are ‘‘solely’’ engaged in the 

business of performing such services. 

Rather, the intent of the carve-out was 

to exclude validators from reporting on 

sales for which they provide validation 

services unless those validators also 

performed other services with respect to 

those same sales that would be treated 

as effectuating services. Accordingly, 

final § 1.6045–1(a)(21)(iii)(C)(1) 

provides that providing distributed 

ledger transaction validation services 

(whether through proof-of-work, proofof-stake, or any other similar consensus 

mechanism), including those services 

necessary to complete the validation, 

are not an effectuating service under 

final § 1.6045–1(a)(21)(i). Additionally, 

an example is added at final § 1.6045– 


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25The major question doctrine is a canon of 

construction that bars agencies from resolving 

questions of ‘‘vast economic and political 

significant’’ without clear statutory authorization. 

1(b)(24) to illustrate that the exclusion 

applies only to the validation services 

provided. It does not apply when 

validators also perform trading frontend services because those validators 

must report sales carried out as a result 

of those trading front-end services. 

Thus, if a validator, as part of its 

ordinary course of a trade or business, 

provides trading front-end services with 

respect to a sale for a customer and 

thereafter also validates that sale (likely 

without even knowing that validated 

block included the customer’s sale), the 

validator would be required to report on 

the sale as a result of providing the 

trading front-end services 

notwithstanding that the validator also 

validated the sale. 

IV. Multiple Broker Rule 

The proposed regulations did not 

extend the multiple broker rule under 

§ 1.6045–1(c)(3)(iii) of the pre-TD 10000 

regulations to digital asset brokers, but 

instead asked for comments regarding 

the best way to apply a multiple broker 

rule. Comments overwhelmingly 

requested that the final regulations 

implement a multiple broker rule 

applicable to digital asset brokers to 

avoid burdensome and confusing 

duplicative reporting. In response, TD 

10000 added a multiple broker rule 

under § 1.6045–1(c)(3)(iii)(B) that 

applies if more than one digital asset 

broker effects the same sale. Under that 

rule, the broker crediting the gross 

proceeds to the customer’s wallet 

address or account (the crediting broker) 

must report the transaction to the IRS. 

The other broker can generally avoid 

reporting if it obtains proper 

documentation from the crediting 

broker that the crediting broker is a U.S. 

digital asset broker. The preamble to TD 

10000 also indicated that the Treasury 

Department and the IRS are continuing 

to study the question of how a multiple 

broker rule would apply to the noncustodial (DeFi) digital asset industry. 

Many comments pointed out that a 

customer engaging in any DeFi 

transaction may use the services of 

many DeFi participants, including 

interface providers, wallet software 

providers, and DeFi protocols. To the 

extent the final regulations deem all of 

these DeFi participants to be brokers, 

their overlapping reporting obligations 

would create duplicate reporting and 

unnecessary compliance costs. Because 

these final regulations treat only trading 

front-end service providers as a broker 

and because only one front-end service 

provider translates the customer’s trade 

order details into coded trade order 

instructions, there should generally be 

only one DeFi participant that is a 

broker under section 6045(c)(1)(D) in a 

DeFi transaction. The Treasury 

Department and the IRS are not aware 

of multiple broker fact patterns in which 

more than two types of brokers could be 

involved in a DeFi sale. If such a case 

did exist, however, the existing multiple 

broker rule in § 1.6045–1(c)(3)(iii)(B) 

would apply to ensure that only one of 

the two brokers report on the 

transaction. Further, the Treasury 

Department and the IRS intend to issue 

a notice of proposed rulemaking that 

will propose examples illustrating how 

the existing multiple broker rule would 

apply to transactions like this that are 

effected by both a front-end service 

provider and a custodial broker to 

obtain comments from the public 

regarding the application of the existing 

multiple broker rule in § 1.6045– 

1(c)(3)(iii)(B) to such transactions. 

V. Comments Based on Constitutional 

Concerns 

A. Major Questions Doctrine 

Several comments alleged that the 

proposed regulations, if finalized, 

would raise major questions doctrine 

concerns under West Virginia v. EPA, 

597 U.S. 697 (2022).25 One comment 

alleged that the IRS ‘‘literally has no 

power to act . . . unless and until 

Congress confers power upon it,’’ La. 

Pub. Serv. Comm’n v. FCC, 476 U.S. 

355, 374 (1986), and that Congress’s use 

of the term ‘‘broker’’ did not authorize 

the IRS to impose onerous requirements 

on every person tangentially involved in 

cryptocurrency or other digital assets. 

The comment claimed that the proposed 

regulations, if finalized, would 

eliminate DeFi transactions and 

fundamentally transform non-custodial 

wallet services and that Congress 

withheld that authority from the 

Treasury Department and the IRS even 

though Congress amended section 6045 

to allow for broker reporting on digital 

asset transactions. Another comment 

claimed that the Treasury Department 

and the IRS should be especially careful 

not to encroach on Congress’s 

policymaking power in light of the 

ongoing congressional debate about how 

digital assets should be treated and 

regulated and the economic importance 

of the digital asset industry. The 

comment alleged that amended section 

6045 does not provide any clear 

congressional authorization that could 

give the IRS the right to dictate 

important policy decisions about digital 

assets. 

The Treasury Department and the IRS 

do not agree that these final regulations 

are prohibited by the major questions 

doctrine. The major questions doctrine 

is only implicated when an agency 

claims an extraordinary grant of 

regulatory authority based on ‘‘modest 

words,’’ ‘‘vague terms,’’ or ‘‘subtle 

devices,’’ and the ‘‘history and the 

breadth’’ of the agency’s asserted power 

provide a reason to hesitate before 

concluding that Congress meant to 

confer such authority. West Virginia v. 

EPA, 597 U.S. at 721 and 723. 

Section 80603 of the Infrastructure 

Act made several changes to the broker 

reporting provisions under section 6045 

to clarify the rules regarding how 

certain digital asset transactions should 

be reported by brokers. These 

clarifications are not mere ‘‘modest 

words,’’ ‘‘vague terms,’’ or ‘‘subtle 

devices.’’ Section 6045(c)(1)(D) provides 

that a broker includes ‘‘any person who 

(for consideration) is responsible for 

regularly providing any service 

effectuating transfers of digital assets on 

behalf of another person.’’ As discussed 

in Part II. of this Summary of Comments 

and Explanation of Revisions, this 

statutory language extends to treating 

DeFi industry participants as brokers. 

Furthermore, these final regulations 

do not claim or exercise an 

extraordinary grant of regulatory 

authority. As discussed in Part III.A.1. 

of this Summary of Comments and 

Explanation of Revisions, the only DeFi 

participant treated as providing 

effectuating services for purposes of 

these final regulations is the DeFi 

participant that provides trading frontend services. These front-end services 

are analogous to the services provided 

by securities brokers in the securities 

industry, which are already subject to 

section 6045 broker reporting. 

B. Comments Based on the First, Fourth, 

and Fifth Amendments 

Multiple comments alleged that the 

proposed regulations, if finalized, 

would violate the First, Fourth, and 

Fifth Amendments to the U.S. 

Constitution on a variety of asserted 

bases, some of which apply to DeFi 

participants. As discussed in the 

preamble to TD 10000, the final 

regulations do not violate the First 

Amendment because they do not 

compel political or ideological speech 

by DeFi participants and merely require 

information reporting for Federal tax 

compliance purposes, a sufficiently 

important governmental interest. See 89 

FR 56520. The final regulations also do 

not violate the Fourth Amendment as 


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applied to DeFi participants because, as 

explained in the preamble to TD 10000, 

the Fourth Amendment’s protections 

extend only to items or places in which 

a person has a constitutionally protected 

reasonable expectation of privacy. See 

89 FR 56520, 56521. 

As mentioned in the preamble to TD 

10000, some comments stated that the 

definition of broker, effect, and digital 

asset middleman are unconstitutionally 

vague. See 89 FR 56521. The Due 

Process Clause of the Fifth Amendment 

provides that ‘‘no person shall . . . be 

deprived of life, liberty, or property, 

without due process of law.’’ This 

provision has been interpreted to 

require that statutes, regulations, and 

agency pronouncements define conduct 

subject to penalty ‘‘with sufficient 

definiteness that ordinary people can 

understand what conduct is 

prohibited.’’ See Kolender v. Lawson, 

461 U.S. 352, 357 (1983). The relevant 

test is that a ‘‘regulation is 

impermissibly vague under the Due 

Process Clause of the Fifth Amendment 

if it ‘fails to provide a person of ordinary 

intelligence fair notice of what is 

prohibited, or is so standardless that it 

authorizes or encourages seriously 

discriminatory enforcement.’’’ United 

States v. Szabo, 760 F.3d 997, 1003 (9th 

Cir. 2014) (quoting Holder v. 

Humanitarian Law Project, 561 U.S. 1, 

18 (2010)). 

The final regulations are not 

unconstitutionally vague. As discussed 

in Part II. of this Summary of Comments 

and Explanation of Revisions, the 

statutory definition of broker is broad 

enough to include multiple DeFi 

participants involved in a DeFi 

transaction. Despite this broad statutory 

definition of broker, the final 

regulations are more narrowly tailored 

so that they apply only to those DeFi 

participants that provide services 

analogous to those performed by brokers 

in the securities industry. Section 

1.6045–1(a)(1) defines a broker as ‘‘any 

person . . . that, in the ordinary course 

of a trade or business during the 

calendar year, stands ready to effect 

sales to be made by others.’’ Section 

1.6045–1(a)(10)(i)(D) added to the 

definition of effect to act as a digital 

asset middleman for a party in a sale of 

digital assets. Digital asset middleman 

was defined in § 1.6045–1(a)(21)(i) as 

any person who, with respect to a sale 

of digital assets provides a facilitative 

service. Proposed § 1.6045– 

1(a)(21)(iii)(A) would have defined a 

facilitative service as any service that 

directly or indirectly effectuates a sale 

of digital assets. Rather than maintain 

this broad definition of a facilitative 

service, final § 1.6045–1(a)(21)(iii)(A) 

defines an effectuating service as a 

trading front-end service and other 

narrowly identified effectuating 

services. Final § 1.6045– 

1(a)(21)(iii)(A)(1) defines these trading 

front-end services with sufficient 

specificity to avoid due process 

concerns. 

VI. Applicability Dates and Penalty 

Relief 

One comment, pointing to the safe 

harbor rules generally applicable under 

section 6721(c)(3) of the Code to de 

minimis transactions, requested penalty 

relief for persons who unknowingly and 

unintentionally engage in activities that 

result in such persons being brokers 

under the final regulations if such 

persons remain below a de minimis 

threshold for the number and/or value 

of transactions should have this relief 

effected during a start-up or transitional 

period. Alternatively, or potentially in 

addition to this request for a temporary 

de minimis threshold, this comment 

requested a permanently applicable 

‘‘grace period’’ for any industry 

participant that has unintentionally 

violated the information reporting 

requirements under section 6045 after 

qualifying as a broker during which 

grace period such person can either 

come into compliance or adjust its 

activities so as to avoid qualifying as a 

broker, without immediately facing 

penalties. The IRS does not agree that it 

is appropriate to provide penalty relief 

for start-up brokers whose services 

effectuate transactions during a grace 

period or that fall below a de minimis 

threshold beyond that relief already in 

place under section 6721(c)(3) for de 

minimis reporting errors or under 

section 6724 of the Code for errors that 

are due to reasonable cause because this 

type of relief is not generally provided 

for other information reporting 

provisions. See e.g., section 6041 

(applicable to all persons engaged in a 

trade or business making payments in 

the course of such trade or business). 

Persons providing trading front-end 

services to customers as a trade or 

business are expected to investigate all 

the legal requirements of conducting 

that trade or business. Relief for those 

that do not properly investigate beyond 

the existing de minimis rules or the 

reasonable cause penalty relief under 

section 6724 is, therefore, not 

appropriate. 

The Treasury Department and the IRS 

received and considered many 

comments about the applicability dates 

contained in the proposed regulations. 

Multiple comments requested 

additional time beyond the proposed 

applicability date for gross proceeds 

reporting by DeFi participants on 

transactions occurring on or after 

January 1, 2025, so that newlyreclassified brokers could build 

compliance programs properly. The 

comments generally asked for more 

time, ranging from one to five years after 

publication of the final rules, to prepare 

for reporting transactions, with the most 

common suggestion being an 

applicability date between 18 and 24 

months after publication of the final 

regulations. Several comments 

suggested that broker reporting begin at 

the same time as CARF reporting, either 

for all brokers or for non-U.S. brokers. 

Multiple comments requested that the 

final regulations become applicable in 

stages, with many suggesting that 

custodial industry participants should 

be required to report during the first 

stage and that DeFi participants should 

begin reporting a year or more later. 

Comments generally pointed to the time 

needed to build information reporting 

systems and to adequately document 

customers to support their 

recommendation of later applicability 

dates. They also cited concerns about 

fulfilling backup withholding 

requirements and adapting to filing a 

new information return, the Form 1099– 

DA, Digital Asset Proceeds From Broker 

Transactions, and about the IRS’s ability 

to receive and process a large number of 

new forms. 

The Treasury Department and the IRS 

previously determined that a phased-in 

or staged approach to broker reporting is 

appropriate. Accordingly, TD 10000 

requires gross proceeds reporting 

generally for sales occurring on or after 

January 1, 2025, for custodial industry 

participants (and certain brokers acting 

as counterparties in a transaction). 

Additionally, TD 10000 requires basis 

reporting for sales occurring on or after 

January 1, 2026, but only with respect 

to digital assets the customer acquired 

from, and held with, the same broker on 

or after January 1, 2026. The preamble 

to TD 10000 stated that the Treasury 

Department and the IRS intend to 

expeditiously issue separate final 

regulations describing information 

reporting rules for DeFi industry 

participants and these rules would be 

finalized with an appropriate, separate 

applicability date. 

Although the applicability date 

proposed by the proposed regulations 

applied to gross proceeds reporting for 

sales of digital assets effected on or after 

January 1, 2025, the Treasury 

Department and the IRS agree that a 

delay is warranted for trading front-end 

service providers treated as brokers 

(DeFi brokers) under these final 

regulations. First, many of these DeFi 


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brokers may not have systems in place 

to collect and store customer identity 

information or contracts with thirdparty service providers to do the same. 

Second, many of these DeFi brokers also 

may not have systems in place to 

collect, store, and report customer 

transaction information or contracts 

with third-party service providers to do 

the same. Third, many of these DeFi 

brokers also do not have backup 

withholding systems that would enable 

these brokers to backup withhold and 

pay the backup withholding tax in cash. 

Based on these considerations, final 

§ 1.6045–1(a)(21) applies to sales of 

digital assets occurring on or after 

January 1, 2027. 

The IRS intends to work closely with 

stakeholders to ensure the smooth 

implementation of the reporting rules, 

including the mitigation of penalties in 

the early stages of implementation for 

all but particularly egregious cases 

involving intentional disregard of these 

rules. Accordingly, to promote industry 

readiness to comply with the backup 

withholding requirements that will 

apply to newly required reporting 

required by these final regulations, 

Notice 2025–3 is being issued 

contemporaneously with these final 

regulations to provide transitional relief 

from broker reporting penalties and 

backup withholding under section 3406 

on these sales. This Notice, which will 

be published in the Internal Revenue 

Bulletin, provides that the effective date 

for backup withholding is postponed to 

January 1, 2028, for potential backup 

withholding obligations imposed under 

section 3406 for payments required to 

be reported by DeFi brokers on Forms 

1099–DA, Digital Asset Proceeds From 

Broker Transactions, for sale 

transactions. Additionally, the Notice 

provides that the IRS will not assert 

penalties for a DeFi broker’s failure to 

deduct, withhold, and pay any backup 

withholding tax with respect to calendar 

year 2028 that is caused by a decrease 

in the value of received digital assets 

between the time of the transaction 

giving rise to the backup withholding 

liability and the time the broker 

liquidates 24 percent of the received 

digital assets, provided the broker 

undertakes to effect that liquidation 

immediately after the transaction giving 

rise to the backup withholding liability. 

For sale transactions effected in 2028 for 

customers that have opened accounts 

with the broker prior to January 1, 2028, 

the Notice further provides that backup 

withholding will not apply with respect 

to any payee that furnishes a TIN to the 

broker, whether or not on a Form W–9 

in the manner required in 

§§ 31.3406(d)–1 through 31.3406(d)–5, 

provided the broker submits that 

payee’s TIN to the IRS’s TIN matching 

program and receives a response that 

the TIN furnished by the payee is 

correct. See § 601.601(d)(2). 

In addition to this specific DeFi 

industry relief, the backup withholding 

relief provided in Notice 2024–56, 

2024–29 I.R.B. 64 (July 15, 2024), also 

applies to the DeFi industry. For 

example, Notice 2024–56 applies to 

digital asset sales effected by a DeFi 

broker under these final regulations 

where the reportable proceeds is a 

specified NFT. Additionally, the backup 

withholding relief provided in Notice 

2024–56 for PDAP sales effected by a 

PDAP will also be applicable to PDAP 

sales effected by a DeFi broker that is 

also PDAP. This relief for PDAP sales, 

however, does not apply to the extent 

the sale is also another type of sale 

described in § 1.6045–1(a)(9)(ii)(A) 

through (C), such as a sale of digital 

asset A for digital asset B, because 

§ 1.6045–1(a)(9)(ii)(D) provides that a 

sale that is a PDAP sale and another 

type of digital asset sale is not treated 

as a PDAP sale. 

Special Analyses 

I. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6(b) of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) (PRA) generally 

requires that an agency obtain the 

approval of the Office of Management 

and Budget (OMB) before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a valid control number 

assigned by the Office of Management 

and Budget. 

In general, the collection of 

information in the regulations is 

required under section 6045 and the 

collection of information in these 

regulations is set forth in § 1.6045–1. 

The IRS intends that the collection of 

information pursuant to section 6045 

and these regulations will be conducted 

by way of Form 1099–DA. In accordance 

with the PRA, the reporting burden 

associated with the collection of 

information in these final regulations 

will be reflected in PRA submissions 

associated with Form 1099–DA (OMB 

control number pending). On April 22, 

2024, the IRS published in the Federal 

Register (89 FR 29433) a Notice and 

request for comments on the collection 

of information requirements related to 

the broker regulations with a 60-day 

comment period. On October 7, 2024, 

the IRS published in the Federal 

Register (89 FR 81151) a second Notice 

and request for comments on the 

collection of information requirements 

related to the broker regulations with a 

30-day comment period. To the extent 

there is a change in burden as a result 

of these final regulations, the change in 

burden will be reflected in an update to 

the burden estimate for Form 1099–DA 

prior to the collection of information 

required under these regulations. 

The proposed regulations contained 

burden estimates regarding the 

collection of information with respect to 

the dispositions of digital assets. For the 

proposed regulations, the Treasury 

Department and the IRS estimated that 

approximately 600 to 9,500 brokers 

would be impacted by the proposed 

regulations, which would have applied 

to all digital asset brokers. The proposed 

regulations contained an estimate of 13 

to 16 million customers that would have 

transactions subject to the proposed 

regulations. The proposed regulations 

also contained an estimate of the 

average time to complete the Form 

1099–DA for each customer as between 

7.5 minutes and 10.5 minutes, with a 

mid-point of 9 minutes (or 0.15 hours). 

Taking the midpoints of the ranges for 

the number of brokers expected to be 

impacted by the proposed regulations, 

the number of taxpayers expected to 

receive one or more Form 1099–DA, and 

the time to complete the Form 1099–DA 

(5,050 brokers, 14.5 million recipients, 

and 9 minutes respectively), the 

proposed regulations estimated the 

average broker would incur 425 hours of 

time burden and $27,000 of monetized 

burden for the ongoing costs per year. 

The proposed regulations contained 

estimates of 2,146,250 total annual 

burden hours and $136,350,000 in total 

monetized annual burden. 

The proposed regulations estimated 

start-up costs to be between three to 

eight times annual costs. Given that the 

Treasury Department and the IRS 

expected the per-broker annual 

estimated burden hours to be 425 hours 

and $27,000 of estimated monetized 

burden, the proposed regulations 

estimated per broker start-up aggregate 

burden hours to range from 1,275 to 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106955 

3,400 hours and $81,000 and estimated 

aggregate monetized burden of 

$216,000. Using the midpoints, start-up 

total estimated aggregate burden hours 

was 11,804,375 and total estimated 

monetized burden was $749,925,000. 

Numerous comments were received 

on the estimates contained in the 

proposed regulations. In general, the 

comments claimed the proposed 

regulations underestimated the burden 

hours and monetized burden. The 

comments that were related to the 

burden associated with the specific 

information required to be reported on 

Form 1099–DA were addressed in the 

preamble to TD 10000. See 89 FR 

56539–56541. In addition, multiple 

comments said that the estimated 

number of brokers impacted by the 

proposed regulations was too low. The 

comments that did not distinguish 

between centralized brokers or DeFi 

brokers under the proposed regulations 

were addressed in the preamble to TD 

10000. Id. 

Some of the comments specifically 

addressed DeFi participants. One 

comment said the estimated number of 

overall brokers identified in the 

proposed regulations was too low 

because it underestimated the impact on 

decentralized autonomous 

organizations, governance token 

holders, operators of web applications, 

and other similarly situated potential 

DeFi participants. As discussed in Part 

III. of this Summary of Comments and 

Explanation of Revisions, the Treasury 

Department and the IRS have 

determined that it is appropriate to treat 

DeFi participants that provide trading 

front-end services as brokers under 

section 6045. The Treasury Department 

and the IRS have also determined that 

it is not appropriate to treat 

decentralized autonomous 

organizations, governance token 

holders, or operators of web 

applications as brokers subject to the 

reporting requirements unless they also 

provide trading front-end services, and 

only with respect to the sales of digital 

assets that are carried out using the 

trading front-end services. Accordingly, 

this burden analysis does not attempt to 

include any of the DeFi participants that 

these final regulations do not treat as 

brokers. 

Numerous comments expressed an 

overall concern with the reporting 

burden associated with the proposed 

regulations but did not specifically 

address the estimated number of 

brokers, number of recipients, or time 

needed to complete the reports. Many of 

these comments expressed a concern 

that the reporting requirements in the 

proposed regulations would reduce the 

benefits of customers engaging in DeFi 

transactions. Several comments 

described the benefits of DeFi, with one 

comment specifically mentioning that 

these benefits include best execution, 

lower fees, faster transaction times, 

enhanced personal information 

protection greater privacy, and the 

avoidance of conflicts of interest. These 

comments generally claimed that the 

reporting required by the proposed 

regulations would place significant 

costs on DeFi participants thereby 

reducing the benefits of engaging in 

DeFi transactions. 

Other comments stated that DeFi 

participants do not currently have 

systems in place to comply with tax 

recordkeeping requirements. One 

comment claimed that the proposed 

regulations would result in DeFi 

participants spending more resources 

requesting, collecting, managing, and 

securing information than they spend 

conducting their current businesses. 

Another comment claimed that it would 

be economically prohibitive for DeFi 

participants to build and maintain 

broker reporting infrastructure systems 

because the services these DeFi 

participants provide are typically 

offered at little cost compared to similar 

services offered by traditional securities 

brokers. In addition, this comment 

claimed that the proposed regulations, if 

finalized, would require DeFi 

participants to build infrastructure 

systems to collect private information 

on users despite never holding any 

customer assets. 

The Treasury Department and the IRS 

understand that these final regulations 

will impose costs on DeFi participants. 

As discussed in Part III. of this 

Summary of Comments and 

Explanation of Revisions, however, the 

final regulations narrow the scope of 

DeFi participants that the proposed 

regulations treated as brokers required 

to report under section 6045 to those 

DeFi participants providing trading 

front-end services. The final regulations 

treat only trading front-end service 

providers as brokers (DeFi brokers) 

under section 6045 for several reasons, 

including that these DeFi participants 

have the closest relationship to 

customers and therefore are in the best 

position to request, collect, and manage 

the information, including the personal 

identification information, required to 

be reported. Additionally, DeFi 

participants that provide trading frontend services provide functions that are 

most analogous to the functions 

provided by securities brokers. As 

discussed in Part II.B.A. of this 

Summary of Comments and 

Explanation of Revisions, the Treasury 

Department and the IRS have concluded 

that the definition of broker should not 

depend on the specific technology used 

to effect transfers of digital assets. While 

certain technologies may allow DeFi 

brokers to be more cost-effective in their 

business operations, their choice to use 

these technologies should not influence 

their inclusion in the definition of 

broker and their requirement to comply 

with the reporting obligations. 

Books or records relating to a 

collection of information must be 

retained so long as their contents may 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by section 

6103 of the Code. 

III. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. chapter 6) requires agencies to 

‘‘prepare and make available for public 

comment an initial regulatory flexibility 

analysis,’’ which will ‘‘describe the 

impact of the proposed rule on small 

entities.’’ 5 U.S.C. 603(a). Unless an 

agency determines that a proposal will 

not have a significant economic impact 

on a substantial number of small 

entities, section 603 of the RFA requires 

the agency to present a final regulatory 

flexibility analysis (FRFA) of the final 

regulations. The Treasury Department 

and the IRS have not conclusively 

determined whether these final 

regulations will have a significant 

economic impact on a substantial 

number of small entities. This 

uncertainty is based in part on a lack of 

sufficient information about the 

industry and therefore, any 

determination requires further study. 

Because there is a possibility of a 

significant impact on a substantial 

number of small entities, a FRFA is 

provided in these final regulations. 


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26 DeFi Llama, https://defillama.com, (last visited 

November 27, 2024). 27CoinGecko, Top Decentralized Exchanges 

Ranked by 24H Trading Volume, https://

www.coingecko.com/en/exchanges/decentralized, 

(last visited November 27, 2024). 

28CoinGecko, Top Decentralized Exchanges 

Ranked by 24H Trading Volume, amounts 

referenced from the last date visited, https://

www.coingecko.com/en/exchanges/decentralized 

(last visited November 27, 2024). 

29Chainalysis Team, North America Leads World 

in Crypto Usage Despite Ongoing Regulatory 

Questions, While Stablecoin Activity Shifts Away 

from U.S. Services, Chainalysis (October 23, 2023), 

available at https://www.chainalysis.com/blog/ 

north-america-cryptocurrency-adoption/ (last 

visited November 29, 2024). 

While the Treasury Department and 

the IRS were unable to find information 

to estimate the number of trading frontend service providers, there is some 

information that can be used to estimate 

the number of DeFi trading protocols. 

For example, one data aggregator states 

that it tracks more than 5,042 different 

protocols across 328 blockchains and 

trading volume for 613 DeFi trading 

protocols (which it calls DEX).26

Another data aggregator states that it 

tracks 852 DeFi trading protocols 

(which it calls decentralized 

exchanges).27 This data aggregator 

shows which website is used to access 

each DeFi trading protocol that it tracks 

and multiple DeFi trading protocols are 

accessed by the same website. Because 

information is not available on the 

number of trading front-end service 

providers, a conservative estimate of the 

number of trading front-end service 

providers can be made using the 

number of DeFi trading protocols. While 

this estimate does not reflect that one 

trading front-end service may provide 

access to multiple DeFi trading 

protocols, it also does not reflect 

unhosted wallet providers that provide 

trading front-end services which may 

also provide access to multiple DeFi 

trading protocols. Accordingly, based on 

the limited information available, the 

Treasury Department and the IRS have 

concluded that approximately 650 to 

875 DeFi brokers, with a mid-point of 

approximately 765 DeFi brokers, will be 

impacted by these final regulations. 

The expected number of impacted 

issuers of information returns under 

these final regulations is between 650 

and 875 estimated DeFi brokers (midpoint of 765). Small Business 

Administration regulations provide 

small business size standards by NAICS 

Industry. See 13 CFR 121.201. The 

NAICS includes virtual currency 

exchange services in the NAICS code for 

Commodity Contracts Intermediation 

(52316). According to the Small 

Business Administration regulations, 

the maximum annual receipts for a 

concern and its affiliates to be 

considered small in this NAICS code is 

$41.5 million. Based on external 

reporting on decentralized exchange 

activity, approximately 10 of the 875 

DeFi brokers identified as impacted 

issuers in the upper bound estimate 

exceed the $41.5 million threshold. This 

implies there could be up to 865 

impacted small business issuers under 

the Small Business Administration’s 

small business size standards. 

Pursuant to section 7805(f) of the 

Code, the notice of proposed rulemaking 

was submitted to the Chief Counsel of 

the Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business, and no 

comments were received. 

A. Need for and Objectives of the Rule 

Information reporting is essential to 

the integrity of the Federal tax system. 

The IRS estimated in its 2019 tax gap 

analysis that net misreporting as a 

percent of income for income with little 

to no third party information reporting 

is 55 percent. In comparison, 

misreporting for income with some 

information reporting, such as capital 

gains, is 17 percent, and for income 

with substantial information reporting, 

such as dividend and interest income, is 

just five percent. 

Prior to TD 10000, many transactions 

involving digital assets were outside the 

scope of information reporting rules. 

Digital assets are treated as property for 

Federal income tax purposes. The 

regulations under section 6045 require 

brokers to file information returns for 

customers that sell certain types of 

property providing gross proceeds and, 

in some cases, adjusted basis. TD 10000 

specifies that digital assets are a type of 

property for which information 

reporting is required by brokers. 

However, TD 10000 reserved on the 

rules for DeFi participants and thus did 

not include DeFi participants in the 

definition of broker required to file 

information returns for digital asset 

transactions. 

Information reporting by DeFi brokers 

under section 6045 will lead to higher 

levels of taxpayer compliance because 

the income earned by taxpayers 

engaging digital assets transactions 

without a custodial broker will be made 

more transparent to both the IRS and 

taxpayers. Clear information reporting 

rules that require DeFi brokers to report 

gross proceeds for taxpayers who engage 

in digital asset transactions will help the 

IRS identify taxpayers who have 

engaged in these transactions, and 

thereby help to reduce the overall tax 

gap. These final regulations are also 

expected to facilitate the preparation of 

tax returns (and reduce the number of 

inadvertent errors or intentional 

misstatements shown on those returns) 

by and for taxpayers who engage in 

digital asset transactions. 

B. Affected Small Entities 

As discussed above, we anticipate a 

maximum of approximately 865 of the 

875 (or 98.8 percent) impacted issuers 

in the upper bound estimate could be 

small businesses. 

1. Impact of the Rules 

As previously stated in the Paperwork 

Reduction Act section of this preamble, 

the reporting of digital asset sales by 

DeFi brokers pursuant to § 1.6045–1 is 

on Form 1099–DA. 

To estimate the impact of these final 

regulations on small DeFi brokers, the 

Treasury Department and the IRS first 

estimated the number of customers that 

will have transactions subject to these 

final regulations. To determine the 

number of customers that will have 

transactions subject to these final 

regulations, the Treasury Department 

and the IRS reviewed reports from 

several digital asset industry 

participants. While these reports 

indicate that there were over 196 

million visits to the websites providing 

access to the DeFi trading protocols in 

the most recent month and $1.9 trillion 

in 24-hour trading volume for the most 

recent 24-hour period, these amounts do 

not reflect the number of customers that 

will be impacted by these regulations 

because a single customer may visit a 

website providing access to the DeFi 

trading protocols more than once in a 

month and may or may not engage in a 

trade each time they visit the website 

and the customer may also engage in 

different size transactions.28

Additionally neither the visits nor the 

trading volume were separately reported 

for U.S. and non-U.S. customers. In an 

attempt to narrow down this 

information to determine the number of 

customers that each DeFi protocol 

services, the Treasury Department and 

the IRS reviewed a recent analysis that 

found the North American 

cryptocurrency market is the largest 

cryptocurrency market, with an 

estimated $1.2 trillion in value received 

on-chain between July 2022 and June 

2023, which represents 24.4% of global 

transaction activity.29 These on-chain 

transactions are likely correlated with 

DeFi transactions because many 

centralized brokers effect their customer 

transactions utilizing omnibus ledgers. 

Another analysis reported that the 

number of unique worldwide DeFi users 

reached a peak of 7.5 million in late 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106957 

30Ruby Layram, Eye-Opening DeFi Statistics & 

Facts (Updated for 2024), Bankless Times (August 

1, 2024), available at https://

www.banklesstimes.com/defi-statistics/ (last visited 

November 29, 2024). 

31While country-specific information is difficult 

to obtain, information on the North American 

cryptocurrency market would include U.S. users. 

Treasury and IRS use this information even though 

it is an over-estimate of U.S. users. 

2021, whereas in April 2024, the total 

number of DeFi users was only 5 

million.30 Based on this information, the 

Treasury Department and the IRS have 

determined that best-available estimate 

of the minimum number of customers 

impacted by these regulations is 20% of 

the peak users in 2024, which is an 

estimate of 1 million customers, and the 

maximum number of customers 

impacted by these regulations is 35% of 

the peak users in 2021, which is an 

estimated 2.625 million customers, with 

a mid-point of approximately 1,812,500 

customers.31

Next, the Treasury Department and 

the IRS estimated the average time for 

a DeFi broker to complete the Form 

1099–DA. These final regulations do not 

change the information required to be 

reported on the Form 1099–DA as 

provided in TD 10000. Therefore, the 

Treasury Department and the IRS have 

concluded that it is appropriate to use 

the average time to complete the Form 

1099–DA estimate from TD 10000, 

which is between 7.5 minutes and 10.5 

minutes, with a mid-point of 9 minutes 

(or 0.15 hours), for each customer. This 

estimate is based survey data collected 

from similar information return filers 

which include small businesses. 

Finally, the Treasury Department and 

the IRS estimated the average start-up 

costs per broker. The proposed 

regulations estimated that initial startup costs would be between three and 

eight times annual costs. Several 

comments said that these costs were 

underestimated because many of the 

persons treated as brokers under the 

proposed regulations are newer 

companies with limited funding and 

resources. One comment said the 

multiple applied was too low and a five 

to ten times annual costs would be a 

more reasonable estimate given the 

complexity of the reporting regime and 

would more closely align with prior 

start-up costs for similar reporting 

regimes. Consistent with TD 10000 and 

a continuing acknowledgment that it is 

difficult to estimate start-up costs, the 

Treasury Department and the IRS accept 

the comment to use a five to ten times 

annual cost multiplier to determine the 

estimate of these costs for DeFi brokers. 

In summary, the Treasury Department 

and the IRS estimate that approximately 

865 of the 875 (or 98.8 percent) 

impacted issuers in the upper bound 

estimate could be small businesses. The 

Treasury Department and the IRS 

estimate that 1,812,500 customers will 

be impacted by these final regulations. 

As previously noted, the number of 

DeFi brokers is based on the number of 

DeFi trading protocols, rather than the 

number of trading front-end service 

providers because the number of trading 

front-end service providers is not 

readily available. It is not possible to 

know how many DeFi users engage in 

transactions with each DeFi trading 

protocol. Given the lack of information 

available, the Treasury Department and 

the IRS have assumed that each 

customer uses one DeFi trading 

protocol, which results in an estimate of 

approximately 2,400 customers per 

broker. A reasonable estimate for the 

average time to complete these forms for 

each customer is 9 minutes (0.15 hours). 

Therefore, the Treasury Department and 

the IRS estimate the average time 

burden per broker will be approximately 

360 hours. Additionally, start-up costs 

are estimated to be between five and ten 

times annual costs. Given the expected 

per-DeFi broker annual burden of 360 

hours, the Treasury Department and the 

IRS estimate per-DeFi broker start-up 

burden between 1,800 to 3,600 in startup costs to build processes to comply 

with the information reporting 

requirements. 

Although small DeFi brokers may 

engage third party tax reporting services 

to complete, file, and furnish 

information returns to avoid the start-up 

costs associated with building an 

internal information reporting system 

for sales of digital assets, it remains 

difficult to predict whether the 

economies of scale efficiencies of using 

these services will offset the somewhat 

more burdensome ongoing costs 

associated with using third party 

contractors. 

2. Alternatives Considered for Small 

Businesses 

The Treasury Department and the IRS 

considered alternatives to these final 

regulations that would have created an 

exception to reporting, or a delayed 

applicability date, for small DeFi 

brokers but decided against such 

alternatives for several reasons. As 

discussed above, we anticipate that 

approximately 865 of the 875 (or 98.8 

percent) impacted issuers in the upper 

bound estimate could be small 

businesses. One purpose of these 

regulations is to eliminate the overall 

tax gap. Any exception or delay to the 

information reporting rules for small 

DeFi brokers, which may comprise the 

vast majority of impacted issuers, would 

reduce the effectiveness of these final 

regulations. In addition, such an 

exception or delay could have the 

unintended effect of incentivizing 

taxpayers to move their business to 

excepted small DeFi brokers, thus 

thwarting IRS efforts to identify 

taxpayers engaged in digital asset 

transactions. Additionally, because the 

information reported on statements 

furnished to customers will remind 

taxpayers who engage in DeFi 

transactions that the transactions are 

potentially taxable, thereby reducing the 

number of inadvertent errors or 

noncompliance on their Federal income 

tax returns, information reported by 

small DeFi brokers will be able to offer 

their customers the same amount of 

useful information as their larger DeFi 

competitors. Finally, to the extent 

investors in digital assets are themselves 

small businesses, these final regulations 

will also provide these businesses with 

the same reminders that the DeFi 

transactions are taxable. 

3. Duplicate, Overlapping, or Relevant 

Federal Rules 

These final regulations do not overlap 

or conflict with any relevant Federal 

rules. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. This rule does 

not include any Federal mandate that 

may result in expenditures by State, 

local, or Tribal governments, or by the 

private sector in excess of that 

threshold. 

V. Executive Order 13132: Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial, direct compliance costs on 

State and local governments, and is not 

required by statute, or preempts State 

law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive order. This 

final rule does not have federalism 

implications, does not impose 

substantial direct compliance costs on 

State and local governments, and does 

not preempt State law within the 

meaning of the Executive order. 


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106958 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as a major rule as 

defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

IRS Revenue Procedures, Revenue 

Rulings, Notices, and other guidance 

cited in this document are published in 

the Internal Revenue Bulletin and are 

available from the Superintendent of 

Documents, U.S. Government 

Publishing Office, Washington, DC 

20402, or by visiting the IRS website at 

https://www.irs.gov. 

Drafting Information 

The principal authors of these 

regulations are Roseann Cutrone and 

Jessica Chase, Office of the Associate 

Chief Counsel (Procedure and 

Administration). However, other 

personnel from the Treasury 

Department and the IRS participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Reporting and recordkeeping 

requirements. 

Amendments to the Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by revising the 

entry for § 1.6045–1 to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

Section 1.6045–1 also issued under 26 

U.S.C. 6045(a). 

* * * * * 

■ Par. 2. Section 1.6045–0 is amended 

by: 

■ 1. Revising the entries for § 1.6045– 

1(a)(21), (a)(21)(i) through (iii), and 

(a)(21)(iii)(A); 

■ 2. Adding entries for § 1.6045– 

1(a)(21)(A)(iii)(1) and (2); 

■ 3. Revising the entry for § 1.6045– 

1(a)(21)(iii)(B); and 

■ 4. Adding entries for § 1.6045– 

1(a)(21)(iii)(C), (a)(21)(iii)(C)(1) and (2), 

and (a)(21)(iii)(D). 

The revisions and additions read as 

follows: 

§ 1.6045–0 Table of contents. 

* * * * * 

§ 1.6045–1 Returns of information of 

brokers and barter exchanges. 

(a) * * * 

(21) Digital asset middleman. 

(i) Effectuating service. 

(ii) Position to know. 

(iii) Trading front-end service and other 

effectuating services. 

(A) Trading front-end service. 

(1) In general. 

(2) Location of digital assets received in an 

exchange and indirect transmission of orders. 

(B) Other effectuating services. 

(C) Excluded activities. 

(1) Validation services. 

(2) Licensing of software or selling of 

hardware. 

(D) Digital asset trading protocol. 

* * * * * 

■ Par. 3. Section 1.6045–1 is amended 

by: 

■ a. Revising and republishing 

paragraph (a)(21); 

■ b. Revising paragraphs (b)(2)(ix) and 

(x); 

■ c. Adding paragraphs (b)(2)(xi) and 

(b)(24) and (25); and 

■ d. Adding a sentence to the end of 

paragraph (q). 

The revisions and additions read as 

follows: 

§ 1.6045–1 Returns of information of 

brokers and barter exchanges. 

(a) * * * 

(21) Digital asset middleman. The 

term digital asset middleman means any 

person who is responsible for providing 

an effectuating service as defined in 

paragraph (a)(21)(i) of this section with 

respect to a sale of digital assets. 

(i) Effectuating service. The term 

effectuating service means any service, 

with respect to a sale of digital assets, 

that is: 

(A) A trading front-end service 

described in paragraph (a)(21)(iii)(A) of 

this section wherein the nature of the 

service arrangement is such that the 

person providing that service ordinarily 

would know or be in a position to know 

within the meaning of paragraph 

(a)(21)(ii) of this section the nature of 

the transaction potentially giving rise to 

gross proceeds from the sale of digital 

assets; or 

(B) Any other service described in 

paragraph (a)(21)(iii)(B) of this section. 

(ii) Position to know. A person 

providing trading front-end services 

ordinarily would know or be in a 

position to know the nature of the 

transaction potentially giving rise to 

gross proceeds from a sale of digital 

assets if that person maintains control or 

sufficient influence over the trading 

front-end services to have the ability to 

determine whether and the extent to 

which the transfer of digital assets 

involved in a transaction gives rise to 

gross proceeds. A person providing 

trading front-end services will be 

considered to maintain control or 

sufficient influence over such services 

as referred to in this paragraph (a)(21)(ii) 

if that person has the ability to amend, 

update, or otherwise substantively affect 

the terms under which the services are 

provided or the manner in which the 

order described in paragraph 

(a)(21)(iii)(A) of this section is 

processed. Additionally, a person 

providing trading front-end services will 

be considered to maintain control or 

sufficient influence over such services 

as referred to in this paragraph (a)(21)(ii) 

if that person has the ability to collect 

the fees charged for those services from 

the transaction flow (including from the 

digital assets disposed of or the digital 

assets received by the customer in the 

sale), whether or not the person actually 

collects fees in this manner. A person 

providing trading front-end services also 

will be considered to maintain control 

or sufficient influence over such 

services as referred to in this paragraph 

(a)(21)(ii) if that person has the ability, 

in connection with processing the order 

described in paragraph (a)(21)(iii)(A) of 

this section, to add to the order a 

sequence of instructions to query the 

cryptographically secured distributed 

ledger to determine if the processed 

order is, in fact, executed or to use 

another method of confirmation based 

on information known to that person as 

a result of providing the trading frontend services. Except as provided by the 

Secretary, a contractual or other 

restriction not required by law that 

limits the ability of the person providing 

trading front-end services to amend, 

update, or otherwise substantively affect 

the terms under which the services are 

provided (including the manner in 

which any fees are collected) or the 

manner in which the order is processed 

will be disregarded for purposes of this 

paragraph (a)(21)(ii). 

(iii) Trading front-end service and 

other effectuating services—(A) Trading 

front-end service—(1) In general. A 

trading front-end service means a 

service that, with respect to a sale of 

digital assets, receives a person’s order 

to sell and processes that order for 

execution by providing user interface 

services, including graphic and voice 

user interface services, that are designed 

to: 

(i) Enable such person to input order 

details with respect to a transaction to 

be carried out or settled on a 

cryptographically secured distributed 

ledger (or any similar technology); and 

(ii) Transmit those order details so 

that the transaction can be carried out 

or settled on a cryptographically 

secured distributed ledger (or any 

similar technology), including by 

transmitting the order details to the 

person’s wallet in such form that, if 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106959 

authorized by the person, causes the 

order details to be transmitted to a 

distributed ledger network for 

interaction with a digital asset trading 

protocol as defined in paragraph 

(a)(21)(iii)(D) of this section. 

(2) Location of digital assets received 

in an exchange and indirect 

transmissions of orders. A service is a 

trading front-end service regardless of 

whether the digital assets received in 

the exchange are received in the wallet 

of the person providing the order details 

or in the wallet of another person 

pursuant to the first person’s order 

details. The direct or indirect 

transmission to a distributed ledger 

network of order details that call upon 

or otherwise invoke the functions of 

automatically executing contracts that 

comprise a digital asset trading protocol 

is a transmission of order details to a 

distributed ledger network for 

interaction with a digital asset trading 

protocol. 

(B) Other effectuating services. An 

effectuating service also means any of 

the services described in paragraphs 

(a)(21)(iii)(B)(1) through (5) of this 

section. 

(1) The acceptance or processing of 

digital assets as payment for property of 

a type which when sold would 

constitute a sale under paragraph 

(a)(9)(i) of this section by a broker that 

is in the business of effecting sales of 

such property. 

(2) Any service performed by a real 

estate reporting person as defined in 

§ 1.6045–4(e) with respect to a real 

estate transaction in which digital assets 

are paid by the real estate buyer in full 

or partial consideration for the real 

estate, provided the real estate reporting 

person has actual knowledge or 

ordinarily would know that digital 

assets were used by the real estate buyer 

to make payment to the real estate 

seller. For purposes of this paragraph 

(a)(21)(iii)(B)(2), a real estate reporting 

person is considered to have actual 

knowledge that digital assets were used 

by the real estate buyer to make 

payment if the terms of the real estate 

contract provide for payment using 

digital assets. 

(3) The acceptance or processing of 

digital assets as payment for any service 

provided by a broker described in 

paragraph (a)(1) of this section 

determined without regard to any sales 

under paragraph (a)(9)(ii)(C) of this 

section that are effected by such broker. 

(4) Any payment service performed by 

a processor of digital asset payments 

described in paragraph (a)(22) of this 

section, provided the processor of 

digital asset payments has actual 

knowledge or ordinarily would know 

the nature of the transaction and the 

gross proceeds therefrom. 

(5) The acceptance of digital assets in 

return for cash, stored-value cards, or 

different digital assets, to the extent 

provided by a physical electronic 

terminal or kiosk. 

(C) Excluded activities—(1) 

Validation services. Notwithstanding 

the definition of trading front-end 

services or other effectuating services in 

paragraphs (a)(21)(iii)(A) and (B) of this 

section, distributed ledger transaction 

validation services (whether through 

proof-of-work, proof-of-stake, or any 

other similar consensus mechanism), 

including those services necessary to 

complete the validation, are not 

effectuating services described in 

paragraph (a)(21)(i) of this section. 

(2) Licensing of software or selling of 

hardware. If a person licenses software 

or sells hardware that provides 

unhosted wallet services that include 

both trading front-end services with 

respect to some sales of digital assets 

and other services that are not trading 

front-end services or other effectuating 

services under paragraph (a)(21)(iii)(B) 

of this section with respect to other 

sales of digital assets, that person is 

providing effectuating services only 

with respect to the sales of digital assets 

that are carried out using the trading 

front-end services provided by the 

unhosted wallet software licensed or 

hardware sold. 

(D) Digital asset trading protocol. A 

digital asset trading protocol means a 

distributed ledger application consisting 

of computer software, including 

automatically executing contracts, that 

exchange one digital asset for another 

digital asset pursuant to instructions 

from a user. 

* * * * * 

(b) * * * 

(2) * * * 

(ix) A person engaged in validating 

distributed ledger transactions, through 

proof-of-work, proof-of-stake, or any 

other similar consensus mechanism, 

including a person that provides 

services necessary to complete the 

validation, without providing other 

functions or services that are 

effectuating services under paragraph 

(a)(21)(i) of this section. 

(x) A person engaged in selling 

hardware or licensing of software, the 

sole function of which is to permit a 

person to control private keys which are 

used for accessing digital assets on a 

distributed ledger, without providing 

other functions or services that are 

effectuating services under paragraph 

(a)(21)(i) of this section. 

(xi) An operator of a digital asset 

trading protocol defined in paragraph 

(a)(21)(iii)(D) of this section that 

provides a distributed ledger 

application consisting of computer 

software, including automatically 

executing contracts, that exchange one 

digital asset for another digital asset 

pursuant to instructions from a user, 

without providing other functions or 

services that are effectuating services 

under paragraph (a)(21)(i) of this 

section. 

* * * * * 

(24) Example 24: Effect, effectuating 

services, digital asset middleman, 

position to know, and customer—(i) 

Facts. As part of B’s trade or business, 

B stands ready to provide customers 

with trading front-end services in return 

for a 1% transaction fee withheld either 

from digital assets transferred or digital 

assets received by its customers in the 

trade. B provides these trading front-end 

services to digital asset user C for the 

sale of 200 units of digital asset DE in 

exchange for 1,500 units of digital asset 

ST (sale 1) and withholds 2 units of DE 

as a transaction fee. B also provides 

digital asset validation services for a 

distributed ledger network. B validates 

a transaction involving the sale of 20 

units of digital asset DE for 150 units of 

digital asset ST (sale 2). B does not 

provide any services described in 

paragraph (a)(21)(iii) of this section with 

respect to sale 2. 

(ii) Analysis with respect to sale 1. 

With respect to sale 1, B has the ability 

to collect fees charged for its trading 

front-end services from the transaction 

flow. Accordingly, B is in a position to 

know the nature of sale 1 under 

paragraph (a)(21)(ii) of this section 

because B maintains control or 

sufficient influence over the trading 

front-end services to have the ability to 

determine whether and the extent to 

which the transfer of digital assets 

involved in a transaction gives rise to 

gross proceeds. Because B provides a 

trading front-end service with respect to 

sale 1 and is in a position to know the 

nature of sale 1 under paragraph 

(a)(21)(ii) of this section, B provides an 

effectuating service under paragraph 

(a)(21)(i)(A) of this section. Accordingly, 

B is a digital asset middleman under 

paragraph (a)(21) of this section with 

respect to sale 1. Additionally, B effects 

sale 1 for C under paragraph (a)(10)(i)(D) 

of this section, and C is B’s customer 

under paragraph (a)(2)(i)(D) of this 

section. 

(iii) Analysis with respect to sale 2. 

Under paragraph (a)(21)(iii)(C) of this 

section, B’s validation services with 

respect to sale 2 are not effectuating 

services. Accordingly, notwithstanding 

that B acts as a digital asset middleman 


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106960 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

with respect to sale 1, B does not act as 

a digital asset middleman with respect 

to sale 2 or effect sale 2. 

(25) Example 25: Effect, effectuating 

services, position to know, digital asset 

middleman and customer—(i) Facts. 

Corporation S is engaged in the business 

of operating and maintaining a website 

that licenses S-brand unhosted wallets 

(S-Wallets). S-Wallets are accessible 

online, allow users to control private 

keys to digital asset addresses, and 

allow users to transfer (and receive) 

digital assets directly from (into) their SWallets. S also offers trading front-end 

services (S-Trade) to each S-Wallet user. 

S charges S-Wallet users that dispose of 

digital assets held in their S-Wallets 

using the S-Trade service a 1% 

transaction fee that is withheld by S 

either from the digital assets transferred 

or the digital assets received by the user 

in the trade. S-Wallet users can use the 

S-Wallet’s private key control function 

and can transfer digital assets to and 

from their S-Wallets without using the 

S-Trade function. S-Wallet user K uses 

the S-Trade function within K’s SWallet to trade 200 units of digital asset 

DE for 1,500 units of digital asset ST 

(sale 1). S withholds 2 units of DE as a 

transaction fee with respect to this 

trade. K also uses the S-Wallet to 

transfer 5 units of DE directly to the 

digital asset address of another person’s 

wallet in return for services provided by 

that other person (sale 2). S does not 

provide any other services described in 

paragraph (a)(21)(iii) of this section with 

respect to sale 2. 

(ii) Analysis with respect to sale 1. 

With respect to sale 1, S has the ability 

to collect fees charged for its trading 

front-end services from the transaction 

flow. Accordingly, S is in a position to 

know the nature of sale 1 under 

paragraph (a)(21)(ii) of this section 

because S maintains control or 

sufficient influence over the trading 

front-end services to have the ability to 

determine whether and the extent to 

which the transfer of digital assets 

involved in a transaction gives rise to 

gross proceeds. Because S provides a 

trading front-end service with respect to 

sale 1 and is in a position to know the 

nature of sale 1 under paragraph 

(a)(21)(ii) of this section, S provides an 

effectuating service under paragraph 

(a)(21)(i)(A) of this section. Accordingly, 

S is a digital asset middleman under 

paragraph (a)(21) of this section with 

respect to sale 1. Finally, S effects sale 

1 for K under paragraph (a)(10)(i)(D) of 

this section, and K is S’s customer 

under paragraph (a)(2)(i)(D) of this 

section. 

(iii) Analysis with respect to sale 2. 

S’s services with respect to sale 2 are 

not effectuating services under 

paragraph (a)(21)(i) of this section 

because these services are not described 

in paragraph (a)(21)(iii)(B) of this 

section and are not trading front-end 

services under paragraph (a)(21)(iii)(A) 

of this section. Accordingly, 

notwithstanding that S acts as a digital 

asset middleman with respect to sale 1, 

S does not act as a digital asset 

middleman with respect to sale 2 or 

effect sale 2. 

* * * * * 

(q) * * * Paragraphs (a)(21), (b)(2)(ix) 

through (xi), and (b)(24) and (25) of this 

section apply to sales of digital assets on 

or after January 1, 2027. (For sales of 

digital assets before January 1, 2027, see 

26 CFR 1.6045–1, as revised September 

9, 2024.) 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: December 5, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–30496 Filed 12–27–24; 8:45 am] 

BILLING CODE 4830–01–P 


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